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Annual Report 2014
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Annual Report 2013
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Contents2 Strategic Report Executive Summary South Staffs Water SSI Services Echo Financial Review
32 Corporate Social Responsibility 38 Executive Team39 Corporate Information40 Directors’ Report 42 Corporate Governance 51 Directors’ Responsibilities Statement 52 Independent Auditor’s Report 54 Consolidated Profit & Loss Account 55 Consolidated Balance Sheet 56 Company Balance Sheet57 Consolidated Statement of Total Recognised Gains & Losses 57 Reconciliation of Movements in Consolidated Shareholders’ Funds58 Consolidated Cash Flow Statement 59 Notes to the Consolidated Cash Flow Statement61 Notes to the Financial Statements91 Group Five Year Summary 92 Contact Details
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Group OverviewThe Group continues to be a highly respected integrated services group with a regulated water supply company, South Staffs Water, comprising two operational regions, South Staffs and Cambridge, and two non-regulated service divisions, SSI Services and Echo.
Group StrategyThe Group strategy is to continue to grow by providing high levels of service quality while remaining price competitive and maintaining a safe working environment in all of the Group’s operations. Details of how the strategy is implemented across the Group are provided throughout the Strategic Report.
South Staffs WaterSouth Staffs Water (including Cambridge Water) has at the core of its strategy providing high quality water and customer service at low prices. The 2013/14 average combined domestic water charges for the South Staffs and Cambridge regions of £141 was the second lowest in the industry and 24% below the industry average. The Company’s commitment to customer service is reflected in its continuing high Service Incentive Mechanism (SIM) scores and it is hoping it will be ranked by Ofwat later this summer as the industry leader for SIM for the 3 years to March 2014. Following the merger of the two supply regions in April 2013, system and business process integration has been a core priority with significant progress being made. Completing the full integration of the two regions and realising the related further benefits remains a priority for this new year.
With the market set to open further to non-household competition in 2017, the business is actively involved in the Open Water consultation and is developing its systems and business processes in readiness for this significant change. Following significant customer engagement, the business submitted its Business Plan for the AMP 6 period to Ofwat in December 2013 and has formally responded to Ofwat’s feedback in June 2014 following a further period of customer consultation. The Draft Determination will be received from Ofwat in August 2014.
SSI ServicesSSI Services has had an encouraging year, being awarded more new business and developing existing relationships. The Clean Water business had a particularly good year, successfully delivering the high volume of work required under key framework contracts and ensuring
Strategic Report:Executive Summary
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its clients receive the quick response to orders and the high quality service they expect. The Water Hygiene business also performed well in a competitive environment. Further system development and implementation is a priority for SSI Services in the current year in order for it to continue to respond further to competitive pressure and allow it to provide the high quality service that clients expect at competitive prices.
EchoEcho had another very positive year, with strong operational performance on its existing contracts, including another year of pleasing debt collection performance for its clients. Echo also made significant progress in the successful implementation of its RapidXtra billing system into Dwr Cymru (Welsh Water) which is expected to be completed, as originally planned, in the current year. The business is expecting further growth from the RapidXtra product in the current year including growth expected from the opportunities from the development of non-household
competition in the water sector with the business recently securing a new contract with Anglian Water Business, its first with a commercial water retailer. It is anticipated that this success will support Echo in achieving its objective of being the leader in this new and expanding market.
EmployeesThe Group employs around 2,500 employees and has a policy of equal opportunities in all forms of employment. In an increasingly competitive environment, the Group requires and encourages its employees to provide ideas, solutions and implement these quickly. The success of the Group is evidence of our employees’ dedication, hard work and ability to work with and manage change, as well as the development and training opportunities the Group provides to them. All of our businesses continue to invest in their people, their safety and wellbeing and we aim to make South Staffordshire Plc a safe Group to work for and to provide a healthy and enjoyable working environment for everyone.
The FutureThis new year will bring significant challenges including working with customers and Ofwat to ensure the Final Determination for regulated water prices for the AMP 6 period is acceptable to all stakeholders, preparing further for increased competition in the water sector, continuing to implement technological and efficiency initiatives across the Group, successfully completing existing projects and developing new opportunities for SSI Services and Echo. However, the Board believes the Group has the expertise and resources to meet these challenges and expects another successful year.
Group OwnershipOn 30 July 2013, the Group was acquired by the Global Infrastructure Fund of Kohlberg Kravis Roberts & Co. L.P. (KKR) together with their co-investors with this being a long-term investment and therefore providing further stability to the Group and its stakeholders.
Strategic Report:South Staffs WaterAs the UK water industry’s landscape changes, South Staffs Water remains committed to driving the delivery of exceptional customer service, high quality water and affordable bills.
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Vital maintenance work to a 900mm diameter water main in Coseley.
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ONE Company...ONE VISIONIn April 2013, the South Staffs and Cambridge regions were successfully merged into one single entity, South Staffs Water, creating a business covering a population of 1.61 million customers (651,000 households and over 40,000 non-household organisations). Our motivation to merge was built on shared values and outcomes that support all of our customers. We have looked at what is good in both regions and redefined service delivery to take advantage of shared resources. As integration continues, the benefits, such as shared resources, learning from experts and economies of scale continue to be realised. Both regions place customers at the very heart of the business; the long-term strategic focus continues to be based on delivering exceptional customer
service, maximising business efficiency through controlling costs and reducing our carbon footprint by further enhancing energy efficiency and promoting water efficiency with our customers.
We continue to set ourselves high standards in everything we do and the continuous improvements that we have made, especially around the integration of the two regions, owes much to the hard work and dedication of the teams that deliver water supplies and services.
Shaping the futureAs the water industry continues to focus on the next price review (PR14), the Company is aware that there will be important differences from the current system, including separate controls for the wholesale part of the Company – the networks
and treatment plants – and the retail element, which manages customer contact and relationships.
Customer insight is critical with greater emphasis on achieving objectives that are set in consultation with our customers. The Customer Challenge Group (CCG), with strong customer and stakeholder representation, plays a valuable role in informing the Company’s strategic direction and has been extremely useful in guiding proposed outcomes for PR14.
AffordabilityThe Company aims to operate in an efficient and sustainable way, which helps to keep customer bills low by keeping our costs low. Recognised by Ofwat and industry peers as one of the most efficient companies in the sector, we are committed to maintaining this position in the future.
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We continue to prioritise the balance of achieving excellent customer service in the supply of a resource which is imperative to life and wellbeing as well as to the supply chain for business customers, with keeping bills low and offering help for those in need.
Our customers, on average, paid the second lowest water bills in England and Wales, with an average 2013/14 bill of £144 for the South Staffs region and £130 for the Cambridge region, which were 23% and 30% lower than the industry average respectively.
We recognise that there are some customers who may find it difficult to pay their water bill. We have worked with organisations such
The Cambridge region has a high level of metered customers.
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Competition will drive greater customer service but will also encourage innovation and technological advancement at a time when customer choice, value and environmental efficiency will be paramount.
Customer satisfactionCustomer engagement and the service we deliver to customers is measured through the Service Incentive Mechanism (SIM) score and has become a major part of our business. We stand firm in our commitment to rank within the upper quartile of the SIM tables. Our customers’ journey with us remains at the forefront of what we deliver with customer insight providing a key indicator of satisfaction. The overall SIM ranking within the industry for 2013/14 will be known during the summer of 2014 and the Company is hopeful of being ranked by Ofwat as the industry leader for the 3 years to March 2014.
As the blueprint for competition within the non-household sector unfolds, the Company is preparing systems, processes and organisational structures to accommodate this shifting landscape. We are fully understanding of the proposed direction for regulation and of the Water Bill in general. We welcome the prospects for water trading and the opportunities it brings for greater resilience and keeping customers’ bills down.
The Company recognises the need to work more collaboratively with industry partners to ensure we maintain the supply of high quality water, especially to those regions that may experience greater water stress. Trading and collaborative supply are high on our agenda as we seek to address the increasing global demand for water.
as Citizens Advice Bureau (CAB) and local charities to support customers accordingly. Similarly, we have adapted new approaches to collecting money owed.
CompetitionThe landscape within the UK water industry is changing and the Company supports the move to opening up the market to competition within the non-household sector. Open competition will ensure a focus on delivering the best customer service at low prices, and create more choice for non-household customers.
The Company has been active in the debate about the future of water both from a wholesale and retail perspective. This proactive involvement has enabled us to prepare for these changes, through a strategy that creates opportunities to leverage core skills.
Annual Report 2014
Annual Report 2013
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Annual Report 2014
Our people are our businessEmployee safety remains paramount and during the year there has been even greater focus on accident and “near miss” reporting. Personnel protection has been enhanced with the introduction of a Lone Worker ‘Buddy’ scheme to safeguard those employees who work alone.
Service delivery is dependent on the dedication and support of employees. The Company continues to invest in apprentices and has an active programme to support training and development at all levels of the organisation. A number of employees have achieved qualifications ranging from National Vocational Qualifications (NVQ) to Masters Degree level.
Enhanced digital service deliveryAs customers opt for more digital modes of communication through tablet devices and mobile apps,
we have investment planned over the next 12 months to enhance our digital customer service delivery. Customers will have a choice on how to engage and interact with us through enhanced
channels, including Intelligent Voice Recognition, social media and more streamlined and personalised online account facilities.
South Staffs Water has a population of 1.61 million customers (651,000 households and over 40,000 non-household organisations)
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By investing in our people and technology, we plan to reduce the number of calls to the contact centre by enhancing our self-serve facilities. Using text messages, a new website that is set for launch towards the end of 2014, as well as other technologies will help to keep customers informed about what we are doing. We are also looking at introducing live updated maps on the website and are making use of Twitter as a way to communicate and engage with our customers.
A continuous supply of safe, clean drinking waterAlthough experiencing one of the wettest winters for over 100 years in 2013/14, the threat to water supplies remains prevalent in certain areas of the UK. The Company is pleased that our resource position remains healthy across both regions due to effective management of resources.
Since the extreme weather experienced in previous years, which increased leakage levels and the number of mains bursts, we have experienced relatively benign winter weather. Additional leakage reduction works have also been carried out in support of drought management activities. As a result of this, the average level of leakage over the year was the lowest on record, while the number of burst mains also reduced to the lowest level in over 18 years in the South Staffs region.
We have a healthy resource position for the 25-year planning horizon with no new resource development required.
As is expected of us, we continued to supply safe, clean, drinking water to our customers. During the year to 31 December 2013, the Cambridge region complied with 100% of all tests carried out on drinking water supplies, with the South Staffs region achieving a compliance rate of 99.95%.
Energising communities The Company’s Corporate Social Responsibility programme has been, and remains, focused on giving something back to the communities we serve.
Activities range from providing charitable grants to local good causes, to sponsoring local events to help bring local people together.
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Education continues to play a vital role in all our community engagement activity. We spend time talking to local school children and community groups about the true value of our water supply. We have also worked with Cambridge City Council to develop a pilot study to understand the practicalities of providing grey water for toilet flushing. We are now examining the potential to install similar schemes on a wider scale in Cambridge.
We also work with organisations such as the StepChange debt charity, local businesses and environmental organisations to ensure that we are listening to our communities and responding to their needs.
The year aheadThe Company remains focused on achieving sustainable growth, by concentrating on customers, people, processes and costs. We aim to deliver the benefits of our investment
programmes and to continuously improve the way we work, to raise standards and drive further efficiency. Giving our customers an even better service is an important part of this.
We complied with...
99.95%South Staffs
region
100%Cambridge
region
...of all tests on drinking water supplies
Strategic Report:SSI ServicesSSI Services is the Group’s specialist infrastructure contracting division, focusing on regulated environments, managing client risk and using specialist technologies to provide added value.
Overnight cleaning of highway drainage by OnSite minimises disruption and uses high pressure water jetting equipment with recycling capabilities.
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A look at the past yearWith positive but modest economic improvements in the UK, a continued focus on driving performance excellence and the further development of the services offered have been very important contributors to the positive improvement in both sales and profits in 2013/14 with a number of our businesses performing very well both operationally and financially.
Our growth strategy continues to be one where organic growth and acquisitions work hand in hand. During the year we acquired Woodside Environmental Services, a specialist mechanical and electrical services company based near Burnley. The business has been integrated into IWS where its services complement those already offered. This has enabled the business to
been maintained in 2013/14 where building and maintaining long-term relationships with our customers is a fundamental part of our philosophy along with the provision of quality services at competitive prices.
SSI Services is made up of three business streams: Clean Water, comprising Hydrosave and IWS; Wastewater, made up of OnSite, OnSite Specialist Maintenance and Perco Engineering Services; and Water Hygiene which also works under the IWS brand. The division now operates from a network of sites across the UK which has seen a growth from 17 locations in 2009/10 to 24 today.
SSI Services is the specialist infrastructure contracting division within the Group. We provide a diverse range of specialist infrastructure based contracting services from design through to installation, testing and repair to long-term maintenance. Our focus is on regulated environments, managing client risk and using specialist technologies to provide added value. We have now developed an even broader customer base across the public and private sector from water utilities through to the Coal Authority, major contractors and Facilities Management (FM) companies alike. We work across the water, wastewater, water hygiene, rail, power generation, construction, FM and local authority markets. The strategy of delivering these services through a number of niche market specialist operating companies has
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create a much stronger presence in the region and to provide a wider range of services to core clients, including United Utilities, with whom both the Woodside business and IWS were successfully awarded 10-year framework contracts during the year.
The division has around 1,250 employees, the majority of whom operate remotely and in often challenging environments, so Health and Safety is of vital importance to us. In 2013/14 we continued to focus on developing a strong Health and Safety based culture and we saw Accident Frequency Rates and Severity Rates (two core KPIs) reduce further as well as achieving a number of gold and silver RoSPA awards, and maintaining our ISO9001 and 14001 status.
IWS is involved in maintenance of essential infrastructure
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Hydrosave specialises in leak detection and water conservation services. The business has made some significant strides in the year in broadening our service offering, including the on-going development of a proprietary valve release system and the offering of a complete valve maintenance system. Significant work has also been carried out in reducing costs, particularly those related to Hydrosave’s fleet, as well as working with employees to enable them to better understand the health and safety, environmental and economic benefits of improved driving standards in one of the division’s largest fleets.
Hydrosave will continue to focus on providing market leading leakage detection services to framework customers across the UK from Scotland to the south coast
Through the Anglian Water and United Utilities contracts we have now successfully moved in to providing wastewater M&E services. Traditionally, clean and wastewater activities have been seen as different streams but through effective quality systems, we have developed the capability to work in both environments, which is an important strategic development.
Pipeline Services also had an excellent year building a broader customer base, including working for Kelda and Thames Water as well as continuing to work for private sector customers. In addition to South Staffs Water, the business has now started to carry out specialist clean water work for a range of other customers, which has enabled us to expand our geographic presence and utilise our track record from working with our traditional customer base.
Clean Water ServicesKey to the development of the Clean Water business has been the closer integration of the activities of its three operating units – IWS Mechanical and Electrical (M&E) Services, IWS Pipeline Services and Hydrosave.
The M&E business secured a number of important new long-term framework contracts, including those with United Utilities and Anglian Water. We were also awarded an extension of our contract with the Coal Authority with whom we have built up a very strong relationship. With an increasingly diverse customer base, the value of building long-term sustainable partnerships and working together to improve asset performance and reliability, as well as the identification and delivery of cost saving initiatives, has been seen as key to our success.
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and build on our track record of developing new camera and non-destructive testing equipment, as well as providing technical services which are used across the water utility sector and a wider range of commercial and industrial customers.
Wastewater ServicesOnSite, which offers specialist wastewater services, including flow monitoring, sewer rehabilitation, CCTV surveys and a 24/7 reactive sewer maintenance capability had another successful year where the business continued to provide market leading quality services to a growing customer base. This performance was delivered despite the start of the cyclical reduction in demand associated with the end of the water sector’s AMP period and tighter budgets towards the end of the year.
Annual Report 2014
Clean Water Servicesand Water HygieneIWSHydrosave
Wastewater ServicesOnSitePercoOnSite Specialist Maintenance
SSI Services Operational Sites
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The business continued to provide its core CCTV and sewer services to, among others, Severn Trent Water, as a specialist sub-contractor to Kier/May Gurney and also to Anglian Water. The relationship with the Environment Agency and the Canal and River Trust has continued to be important throughout the year which illustrates the broad customer base of the business. During the year, we also continued to improve our market leading web-based reporting and flow monitor system which will continue to help the business provide customers with real time and targeted data using the proprietary OS8000 monitors.
A key long-term framework contract for OnSite has recently been awarded in Canada where the business has had a developing presence over the last few years. The new contract is for the provision of specialist CCTV and
sonar surveys of the City of Toronto wastewater network. This contract represents a step up in activity in Canada and is seen as an important step in diversifying OnSite’s scope and reducing the impact of the UK AMP cycle.
During the year, OnSite’s sewer lining business continued to work closely with our key customers including Wessex Water, Anglian Water and Thames providing not only our core CIPP and UV lining services, but also expanding our services to include rising mains high pressure linings.
During the year, Data Contracts Specialist Maintenance and Lingard were rebranded as OnSite Specialist Maintenance, our specialist structural repairs and waterproofing business, to help the business better leverage customer relationships within, and
increasingly outside of the core water sector, and thereby giving us a more comprehensive service offering under a single umbrella brand.
Water HygieneIWS Water Hygiene is a market leading provider of legionella control services and water hygiene risk assessment, maintenance and remedial works to a wide range of customers from major FM companies through to local authorities, housing associations and Government bodies and is now capable of offering a 24 hours a day, 365 days a year national service.
The business had a very positive year, with structural and operating efficiency changes completed during the year having a positive impact both operationally and financially. We continue to work closely with a
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wide range of key clients including Birmingham City Council, RBS (through Carillion) as well as Midland Heart and Sanctuary Homes.
Looking to the futureSSI Services is well placed to mitigate the inevitable AMP cycle impact which will affect the Clean and Wastewater operations in particular in 2014/15. We will continue to invest in technology including new ERP systems in IWS M&E and the Water Hygiene business. The expansion in Canada, the widening of the customer base through OnSite Specialist Maintenance and the investment in valve release technology will support our ongoing organic growth potential. The management team is very aware of the challenges offered by the increased level of competition often experienced at the end of the 5-year AMP cycle as competitors look to
maintain and maximise resource utilisation, and the opportunities offered by the economic recovery. We will continue to invest in developing further operating efficiencies to keep
our cost base low using technology smartly to ensure customers continue to receive quality based added value services at competitive prices.
££ £ £ £
53.2
m
74.3
m 88.7
m
87.7
m 95.6
m
2010 2011 2012 2013 2014
SSI S
ervi
ces T
urno
ver
Strategic Report:EchoEcho’s key strength has been its ability to deliver specialist products and services, built and delivered by industry experts.
Echo’s strength, and a cornerstone of our sustained success and growth in recent years, has been our ability to deliver specialist products and
services, which are built and delivered by people with deep subject matter and industry knowledge.
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of non-household retail competition is an increasingly significant priority for water companies. Acknowledging this Echo has, over the past 18 months, been engaging with many water licensees on the potential for our RapidXtra product to service their commercial customer retail system requirements, once competition is introduced. This engagement, combined with the significant investment we have made in product development over the last 18 months, has resulted in us securing a contract for RapidXtra with Anglian Water Business, our first contract with a commercial retailer. This success should provide the springboard for a market leading position in a new, ‘competition’ based market for water billing systems.
SIM continues to shape water companies’ approach to improving the quality of the service they provide, including a focus on first contact resolution and reducing repeat and unwanted contacts. Echo has been
Coming upFor the UK water industry, which is one of Echo’s main markets, the price determination for the 2015-2020 period, which is currently underway, will present challenges. Water companies are again working hard to preserve their budgets and the new AMP period is also set to bring a change in the way in which budgets are spent, as we move away from a capex and opex model and towards ‘totex,’ but it will also create further out-sourcing opportunities. We will continue to monitor the potential impact of these changes on the industry, our clients and on our growth opportunities.
In addition, outside of the price determination, water companies are faced with a number of other changes, particularly as a result of the Government’s Water Bill, the continued significance of the Service Incentive Mechanism (SIM) and increasing customer debt. As the Water Bill has transferred into statute, the expansion
Echo Managed Services (Echo) provides specialist Business Process Outsourcing (BPO) services and software products to public and private sector organisations including multi-channel customer contact management, billing and debt management services (through Inter-Credit), as well as the provision of the proprietary RapidXtra billing and customer care system.
Echo’s strength, and a cornerstone of our sustained success and growth in recent years, has been our ability to provide specialist products and services, which are built and delivered by people with deep subject matter and industry knowledge. Our strategy has been to focus on this specialism and use our expert knowledge to differentiate ourselves from competitors. A central part of this strategy has been the focus on key, distinct sectors including utilities, media and the public sector.
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working with clients to improve their SIM performance by constantly striving to improve the customer experience, demonstrating a total commitment to quality and to a culture of continual improvement.
Technology is playing a major role in SIM too, and Echo is working to ensure that our clients’ investments release the desired benefits. These investments have seen a particular focus on digital channels, such as web self-service, web chat and social media. The aim is that these channels will help to ensure that contact management agents are increasingly dealing with the more complex enquiries and solving problems for customers, while more simple, transactional contacts are dealt with via self-service.
On both the service and the software sides of the business, Echo’s focus on SIM is reaping rewards. We have helped South Staffs Water to maintain
Echo Bristol has continued to provide specialist outsourced multi-channel customer contact services and projects that focus on the delivery of long-term, quality driven engagement programmes for organisations of all sizes.
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its excellent SIM performance, and industry leading position, while also playing a part in the performance of our RapidXtra clients, most of whom are upper quartile in Ofwat’s SIM rankings.
Keeping in contactIn terms of the contact management side of the business, Echo’s contract to deliver end-to-end customer services on behalf of Northern Ireland Water Limited (NIWL) was due for renewal in 2013. However, in January 2012 NIWL extended the contract by two years to March 2015 and Echo has
recently been, despite very tough competition, successful in being awarded the new contract with NIWL which commences in April 2015 for up to 10 years.
Other sectorsOutside of the water industry focused services, Echo also has a significant presence in both public sector and other private sector markets. Following the acquisition of Callcredit Information Group’s Bristol-based contact centre in March 2013, Echo Bristol has continued to provide specialist outsourced
multi-channel customer contact services and projects that focus on the delivery of long-term, quality-driven engagement programmes for organisations of all sizes. The operation combines best practice technology and processes to provide leading public and private sector organisations (including the Royal Air Force, the Skills Funding Agency, the National Apprenticeships Scheme, the Financial Times and Guardian Media Group) with end-to-end contact management capabilities, from entry-level bureau services through to comprehensive, analytics-enabled multi-channel programmes.
On the debt collection side of the business, Inter-Credit continues to demonstrate a consistent ability to outperform competitors on the contracts in which it operates. The market for debt collection services remains buoyant and demand for services remains strong. In particular, Inter-Credit continues to grow its position as a leading Debt Collection
Proud to be finalists of three industry awards
Institute of Customer
Service
Professional
Planning Forum
Contact Centre
Management Association
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Annual Report 2014
Agency (DCA) within the water industry and recently renewed its contract with Affinity Water. As a DCA which currently serves six UK water companies, it represents another genuine UK water industry leading offering from Echo.
Looking to the futureEcho has put in place a renewed sales and marketing strategy with the aim of establishing our brand in sectors which offer opportunities for long-term growth. The subsequent marketing and lead generation activity reinforces our position as an expert in multi-channel contact management, drawing upon a rich heritage in utilities and the public sector, to provide complex, high priority services and as an experienced provider of support throughout the customer lifecycle, including lead management, acquisition and retention.
The focus for 2014/15 is to continue with the high levels of service offered to existing clients and to enable further growth of both Echo’s contact management and technology offerings. This will include: pursuing opportunities to add new clients; continuing to expand the services
provided to existing clients; and, the ongoing process of identifying and acquiring businesses which are aligned with our strategy and add value to our client base and to our business. The 2014/15 financial year promises to be another year rich in opportunities for Echo.
RapidXtra operates in over a third of UK water customer service operations
The Group has again achieved profit growth in all of its divisions through strong operational performance and tight control of its cost base.
Strategic Report:Financial Review
The Group remains firmly committed to enhancing cash generation and to keeping working capital at efficient levels.
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OverviewThe Group has again achieved a strong financial result with turnover, operating profits and operating cash flows all growing in the year to 31 March 2014. This reflects the Group’s continued focus on developing new business, tight management of all of its costs and on cash generation with the profits and cash flows achieved being ahead of challenging targets set at the start of the year and with the Group being in a good position to experience another successful year in 2014/15.
The Group monitors its financial performance through using certain targeted financial Key Performance Indicators which include but are not limited to EBITDA, operating profit, free cash flow, net debt and trade debtor levels and their ageing.
Turnover & ProfitGroup turnover increased by £19.7m (9.6%) to £224.7m (2013: £205.0m) with sales growth being experienced in all of the Group’s divisions. Turnover
in South Staffs Water (including Cambridge Water) increased by £5.0m to £121.5m, largely due to the price increase allowed by Ofwat which principally represented an increase in the Retail Price Index of 3.0%. Turnover from the Group’s non-regulated service businesses increased by £14.7m to £103.2m (2013: £88.5m), with another very successful year for Echo, including the full year impact of new contracts won last year and sales growth from existing contracts. SSI Services also experienced sales growth particularly in the Clean Water and Wastewater operations, again largely representing the full year impact of new business and higher levels of sales from existing relationships.
The Group’s operating profit (before goodwill amortisation) of £51.3m was ahead of our challenging budget for the year and represents growth of 10.7% on the previous year (£46.3m). Operating profit in South Staffs Water of £35.9m (2013: £33.3m) reflects the turnover growth detailed above, further operating costs efficiencies
achieved in addition to those achieved in 2012/13, partly offset by the unavoidable impact of inflation, some specific cost increases and higher depreciation on the division’s growing capital base as it continues to invest significant amounts in maintaining and improving its assets. Operating profit from our non-regulated businesses of £11.6m (2013: £9.5m) was again encouraging with a number of businesses seeing both sales and profit growth, particularly Echo which recorded an excellent performance both operationally and financially. Total Group operating profit (after goodwill amortisation) grew to £47.5m (2013: £42.8m) and Group EBITDA increased by £6.1m to £80.2m.
Group finance charges (net of interest receivable) reduced to £12.4m (2013: £13.1m) in the year mainly representing the full year impact of the refinancing of bank debt in 2012/13 at lower interest rates and a lower level of borrowings during the year compared to 2012/13
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in quarter 4 of 2012/13 with this being offset by overall lower finance charges as detailed above.
Group capital investment (net of disposals and capital contributions) was £35.6m compared to £40.8m last year, with the reduction of £5.1m, mainly reflecting South Staffs Water reaching its peak year of investment in the AMP5 regulatory period in 2012/13. In total, the two regions of South Staffs Water invested £32.5m (2013: £39.0m) in capital assets, (net of contributions) leaving the overall 4-year cumulative AMP 5 expenditure
partly offset by an increase in charges on index-linked borrowings in South Staffs Water (£0.4m). Overall, profit before tax increased from £29.7m to £35.1m.
TaxThe Group’s corporation tax charge increased by £0.4m with an increase of £1.8m in the current tax charge, reflecting higher levels of profitability with this increase partly offset by a £1.4m increase in the non-cash deferred tax credit in 2013/14 largely reflecting the impact of reductions to deferred tax liabilities arising from corporation tax rate reductions in the future to 20%.
Cash Flow Group cash flow from operating activities was ahead of the target for the year and increased by £9.1m to £75.0m (2013: £66.0m) mainly as a result of the increase to EBITDA (£6.1m) explained above, and lower increases to working capital compared to the previous year
(£2.8m) with control over the level of trade debtors in the Group being encouraging, especially given the sales growth achieved, with the Group remaining firmly committed to enhancing cash generation and to keeping working capital at efficient levels.
The Group’s net cash interest payments of £7.9m remained largely in line with last year with a full year’s coupon payments being made in the year on new debt issued
2010 2011 2012 2013 2014
Operating profit
£42.8
m
£35.3
m
£28.1
m
£28.3
m
£47.
5m
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broadly in line with Ofwat’s Final Determination. Capital investment by the non-regulated businesses increased by £1.4m largely reflecting the continuing asset replacement programme and the enhancement of business systems required for future business improvements including operational efficiencies in order to keep prices competitive.
Overall, due to higher operating cash flows and the planned reduction in capital expenditure in the year, free cash flow increased by £15.4m to £29.0m from £13.7m.
DividendsTotal dividends paid and proposed in the year to 31 March 2014 were £15.2m (2013: £20.0m). This includes final dividends of £6.6m paid in the year but being in respect of the 2012/13 year and £8.6m interim dividends paid in respect of 2013/14.
Net Debt and LiquidityGroup net book debt at 31 March 2014 amounted to £349.8m (2013: £353.9m) a reduction of £4.1m.
This book value differs from the value used for borrowing covenant reporting purposes of £337.7m (2013: £341.8m) which excludes unamortised premium and issue costs and uses actual inflation at the relevant dates as opposed to the long-term inflation assumption used in the book value of index-linked debt. The reduction in the covenant value of net debt from March 2013 of £4.1m largely reflects overall cash generation of £7.7m after payment of dividends partly offset by the impact of higher values for index-linked debt of £5.5m, representing indexation of these borrowings during the year.
In South Staffs Water net debt for covenant reporting purposes was £220.6m (2013: £216.6m) being 64.4% (2013: 64.5%) of the combined Regulated Asset Value (RAV) of the two regions of £342.5m (2013: £335.6m) representing the AMP 5 Final Determination RAV uplifted for inflation. This ratio reflects inflation (RPI) at March 2014 of 2.5% (March 2013: 3.3%), which is used to inflate
RAV, whereas the majority of index-linked debt was inflated using RPI at July 2013 of 3.1% (2013: 3.2%). While the dividend policy for South Staffs Water is to pay dividends up to 77% of net debt/RAV, the intention is to maintain net debt at the current proportion of RAV. The Group has maintained and continues to forecast to maintain significant headroom in respect of all of its borrowing covenants. Standard and Poor’s continues to rate South Staffs Water as BBB+, well within investment grade.
During the year, the Group successfully refinanced maturing drawn bank loans totalling £45.0m, held at a Group level, by entering into new 5-year bank facilities securing significantly lower borrowing costs. Also, a maturing 3-year revolving credit facility of £15.0m in South Staffs Water was replaced with a new 5-year facility of the same value. At 31 March 2014, the Group had available £37.4m of undrawn bank facilities, providing significant liquidity headroom.
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Annual Report 2014
PensionsAs at 31 March 2014 the actuarial valuation of the Group’s existing final salary pension schemes (prepared in accordance with FRS 17 for accounting as opposed to funding purposes) showed a post tax surplus of £12.2m (2013: £12.5m). The Group’s contribution to all of its pension schemes in the year was a significant £5.3m (2013: £5.1m). In April 2014, the Group enrolled over 1,300 employees into a new Group Personal Pension Plan under the government’s Automatic Enrolment initiative.
Principal Risks and UncertaintiesThe Group has an established risk management framework which aims to ensure that all significant business and financial risks and uncertainties that the Group is exposed to are identified and appropriately managed. The most significant risks and uncertainties of the Group are in summary, health and safety, business continuity and disaster recovery, market reform and regulatory price
setting and product and service quality. The main financial risk the Group is exposed to is credit risk. Further details of the financial risks and the way they are managed are provided in note 28 to the Financial Statements. The Board of Directors believe these risks are appropriately managed by the Group.
Operating cash flows
2010 2011 2012 2013 2014
£66.0m£61.0m
£56.4m
£44.2m
The Strategic Report on pages 2 to 31 is approved on behalf of the Board of Directors.
A PageGroup Chief Executive10 July 2014
£75.0m
Corporate Social ResponsibilityThe Group carried out a range of CSR activities during the year; employee development and charity involvement have been particularly successful.
Fundraising for WaterAid, including a fly fishing challenge at Blithfield
Reservoir, generated over £29,000.
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The Group is committed to its Corporate Social Responsibility (CSR) activities. Our focus remains on our employees, the environment, the communities in which we operate, as well as those further away, and our customers.
EmployeesThe Group has around 2,500 employees, all of whom are critical to our continued success and development. All of our businesses continue to invest in their people, their safety and wellbeing and we aim to ensure South Staffordshire Plc remains a safe Group to work for and to provide a good working environment for everyone. -Health and safetyThe effective management of health, safety and wellbeing of our employees is crucial to the organisation. Each business takes responsibility for ensuring the health and safety of all employees in their respective areas. A Group level Health and Safety Strategy Forum, led by the Group Chief Executive and supported by the Group
Health and Safety Manager, continues to oversee activities. The majority of our businesses have retained external accreditation for their health, safety and environmental management systems. The RoSPA Awards Adjudication Panel has recommended that IWS be awarded the RoSPA Gold Medal (five consecutive Gold Awards) for Occupational Health and Safety. This reflects the commitment by management to create and maintain a safe working environment and is the result of excellent performance by all employees. Echo has achieved OHSAS 18001 certification and enforces a Health & Safety Policy across all of its operations.
During the year a Senior Management Workshop was attended by the Group Chief Executive and divisional Managing Directors to provide updates on their legal duties and responsibilities, recent changes to health and safety legislation and strategies for leadership in health and safety at work.
Accident performance continues to be closely monitored throughout the Group. In 2013/14, the Board was pleased to record a year-on-year 13% fall in the accident frequency rate as well as a 16% reduction in the number of days’ absence caused by accidents compared to the previous year. The number of RIDDOR incidents has remained constant at 15. However, we continue to strive for further improvements.
In occupational health, all employees have access to specialist health advisors who can provide proactive health surveillance and advice. For example, Echo provides their workforce with regular health bulletins on topics such as stopping smoking and mental health awareness, initiatives such as these being key to Echo being awarded the Gold Standard for Healthy Workplace from the Walsall Health Trust.
The recent appointment of a Group Health and Safety Manager will further raise the profile of the co-ordination and communication of health and safety issues at Board
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level and throughout the Group, whilst helping the Group’s individual businesses develop and promote business specific and robust working practices that, where pertinent, encourage and enable these businesses to strive for excellence in this area.
Going forward, the Group’s focus will be on further reducing the number of accidents as well as developing an optimum means of recording accident data. The implementation of a minimum standard Management of Occupational Road Risk policy will be completed in 2014/15.
- Training and developmentThe ‘Aspire’ Graduate Programme has been designed to offer graduates exposure to all of our divisions. Focusing on key areas, we have included graduate training and development in all facets of our business – project management, engineering, customer services, planning, people management, commercial and financial management. 2013/14 saw the fifth intake of graduates to the Group.
South Staffs Water continues to invest in Apprentices and has an active programme to support training and development at all levels of the organisation. A number of employees have achieved qualifications ranging from National Vocational Qualifications (NVQ) to Masters Degree level. Non Stop Training, run within SSI Services, is now in its third year of operation and aims to develop individuals in the key “soft” skills needed for developing supervisors, first time managers and employees who seek career development. SSI Services also offers the Robert Harley Award, recognising those employees
who have demonstrated a genuine focus on delivering excellence in all aspects of their job. The 2014 award, which is due to be presented shortly, offers £500 for the winner and a donation of £500 to the charity of the winner’s choice.
Echo holds Investors In People (IIP) Accreditation and recognises talent and rewards success at every opportunity. As a result, in the employee survey, 83.8% of employees said they feel Echo is an enjoyable and positive place to work, a high proportion and also an improvement on last year.
Annual Report 2014
13%
16%
fall in the accident frequency rate
reduction in the number ofdays’ absencecaused by accidents
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Echo analyses the external environment in conjunction with corporate and client strategy, forecasting requirements in terms of employee numbers and skills, and aims to fulfil, maintain and enhance those levels in order to successfully meet and exceed client expectations.
- Equality and fair treatmentThe Group has a policy of equal opportunities and non-discrimination in all forms of employment. All of our businesses are committed to a positive working environment free from any discrimination or unfair treatment which provides all employees with equal opportunities to develop within the Group. Every reasonable effort is made to provide disabled people with equal opportunities for employment, training and promotion, having regard to their particular aptitudes and abilities.
EnvironmentMuch of the Group’s energy use is related to the treatment and pumping activities of South Staffs Water and activities in this area included
continuing to invest significantly in equipment that will assist in pumping water more efficiently and therefore using less energy and reducing the volume of water pumped by further managing leakage and promoting water efficiency.
The South Staffs Water Employer Volunteer Scheme presented staff with the opportunity to work in the community on projects such as habitat creation along the Tad Brook in Staffordshire and the restoration of dilapidated bird hides at Blithfield. An exciting new partnership was formed with the Black Country and Birmingham Wildlife Trust in order to deliver a project that environmentally enhances an area of land owned by South Staffs Water with public access at Sedgley Beacon. The project commenced in March 2014 with a public consultation and environmental data gathering exercise.
SSI Services makes environmental matters a priority. Each of the businesses within the division has a local QUENSH Manager, who coordinates their business’
environmental activities. Activities include working to reduce site waste, promoting safe and efficient driving and procuring materials and equipment with consideration to reducing the environmental impact. As a result of their activities, a number of businesses have achieved and maintained ISO14001 Environmental Management status.
Echo’s ISO14001 certification recognises our awareness and focus on environmental issues and our performance in addressing them. During the year Echo introduced an initiative providing branded ‘bags for life’ for its Belfast staff following legislation which saw an introduction of a 5p levy for any plastic carrier bag. Echo Northern Ireland has also been awarded a prestigious Silver award from the Zero Waste Awards coordinated by letsrecycle.com.
CommunitiesThe Group’s Corporate Social Responsibility programme is focused on giving something back, at a grass roots level, to the communities we serve.
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The Group made charitable donations totalling £176,000 in 2013/14 including to Staffordshire Search and Rescue Team and Blind Dave Heeley’s 7 in Seven challenge. The Group’s coordination of WaterAid fundraising activities continued in force during 2013/14 with £29,000 being raised through activities such as the Group lottery, a fly fishing challenge at Blithfield Reservoir and a race night. Group Services employees also held an auction and bake sale, raising £3,000 for Acorns Children’s Hospice. Education also plays a vital role in all our community engagement activity. South Staffs Water spends time talking to local school children and community groups about the true value of our water supply.
SSI Services aims to be a responsible partner within the local communities in which it operates through the support of community initiatives and local charities. Each business unit is encouraged, through the division’s charitable donations policy, to develop programmes which address the needs of their local community.
Once again Echo employees raised funds for a variety of worthy causes throughout the year. This was the eighth consecutive year that all of Echo’s sites came together to support the Macmillan ‘World’s Biggest Coffee Morning’. In addition Echo employees also supported local and national charities including WaterAid, Movember, CLIC Sargent, Sands and Acorns Children’s Hospice.
CustomersPutting customer satisfaction at the top of the Group’s agenda, building relationships with our customers,
whether household or business customers, and innovation are all key to the future of the Group.
Whilst customer engagement is important to all of our businesses, one example of such work can be found as part of South Staffs Water’s business plan process, where the company commissioned a number of research studies aimed at understanding what our customers expect. Such engagement is set to carry on into the future, through a likely continuation of both a Customer Challenge Group and customer survey panel.
Annual Report 2014
The Group’s annual fundraising event for Breast Cancer Awareness Day was supported by Aqua Direct.
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3. Andrew GarciaManaging Director of SSI ServicesAppointed as Managing Director of SSI Services in September 2010. Prior to his appointment, Andrew has spent 25 years in industry in the UK and in Europe having worked with Veolia ES, SIG Plc and Pilkington Glass in a variety of operational and commercial senior management roles. Andrew also spent three years heading up an Energy and Environment team as part of a major US consultancy.
4. Nigel BakerManaging Director of EchoAppointed as Managing Director of Echo in April 2014 having been Operations Director since October 2005. Prior to working with Echo, Nigel worked with Barclays Stockbrokers Limited and Charles Schwab Europe.
1. Adrian PageGroup Chief ExecutiveAppointed as Group Chief Executive in January 2013, having been Group Finance Director since April 2004. Previously Group Finance Director of South Staffordshire Group Plc from 1998 to 2002. Prior to this Adrian was with ACT Group Plc and KPMG. Adrian is also a Board member for the Water Companies Pension Scheme Trustee Company.
2. Phil NewlandManaging Director of South Staffs Water Appointed Managing Director of South Staffs Water in April 2014 having previously been Managing Director of Echo for 8 years. Prior to joining Echo, Phil was a Management Consultant with Automatic Data Processing (ADP) and Terence Chapman Associates.
The Executive Team
5. Jason GoodwinDirector of Finance and Company SecretaryAppointed as Director of Finance in October 2007 having joined the Group as Group Financial Controller in March 2004 prior to its demerger from Homeserve Plc. Prior to this Jason spent over six years with Deloitte. Jason is also Company Secretary and a Trustee of the South Staffordshire Money Plan Pension Scheme.
1. 3. 4. 5.
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2.
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Directors Jesús Olmos - Chairman
Adrian Page
Ram Kumar
Roger Ammoun
Secretary Jason Goodwin
Registered Office Green Lane, Walsall, West Midlands, WS2 7PD
Telephone: 01922 638282 Registered in England, Number 4295398
Auditor Deloitte LLP
Four Brindleyplace, Birmingham, B1 2HZ
Corporate Information
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40
The Directors have pleasure in presenting their Annual Report for the year ended 31 March 2014.
Major Corporate TransactionsOn 30 July 2013, the Group’s previous owner, Alinda Capital Partners, sold South Staffordshire Plc (together with is subsidiaries and certain holding companies) to the Global Infrastructure Fund of Kohlberg Kravis Roberts & Co. L.P. together with certain of its co-investors.
Except for any matters referred to elsewhere in this Annual Report, there have been no other significant events affecting the Company or any of its subsidiary undertakings since 31 March 2014.
Financial ResultsThe Group’s turnover increased to £224.7m (2013: £205.0m) with total operating profit of £47.5m (2013: £42.8m) and profit before tax of £35.1m (2013: £29.7m). The Group’s financial results are explained in detail in the Financial Review
section of the Strategic Report on pages 26 to 31 and shown in the consolidated profit and loss account and consolidated cash flow statement on pages 54 and 58.
Financial And Treasury RiskDetails of the Group’s policy in respect of financial and treasury risk are provided in note 28 to the financial statements.
DividendsTotal dividends paid and proposed in the year to 31 March 2014 were £15.2m (2013: £20.0m). This includes a final dividend of £6.6m paid in
the year but being in respect of the 2012/13 year and £8.6m interim dividends in respect of 2013/14.
DirectorsDetails of the Directors who held office during the year are as detailed in the table below.
No Director had any material interest in any contract of significance with the Company or the Group during the year under review.
Directors’ Report
Appointed Resigned
Mr A Page (Group Chief Executive) 4 December 2003
Mr J Olmos* (Chairman)
30 July 2013
Mr R Kumar* 30 July 2013
Mr R Ammoun* 30 July 2013
Mr S Riggall* 14 November 2007 30 July 2013
Mr A Black* 26 March 2010 30 July 2013
* Denotes a Non-Executive Director
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Indemnities have been given to all of the Directors to the extent permitted by the Companies Act. Directors and Officers insurance has been established for all Directors, executives and senior management to provide cover against any actions bought against them as Officers of the South Staffordshire Plc group of companies.
Retirement & Re-Election of DirectorsIn accordance with the Companies Act 2006 and the Articles of Association, Mr Olmos, Mr Kumar and Mr Ammoun will retire by rotation and being eligible will offer themselves for re-election.
Corporate Social ResponsibilitySouth Staffordshire Plc regards compliance with relevant environmental laws, the adoption of responsible social and ethical
standards and the well-being and development of its employees, including disabled persons, as integral to its businesses. A summary of the Group’s practices in this regard is provided on pages 32 to 37.
Corporate GovernanceA detailed report on corporate governance is set out on pages 42 to 50.
Payment of Suppliers and Commercial ArrangementsThe Group’s policy is to pay suppliers in line with the terms of payment agreed with each of them when contracting for their products or services. Group trade creditors at 31 March 2014 represent 50 days of purchases (2013: 55 days). The Group is not reliant on any single commercial arrangement.
Independent AuditorIn accordance with the Companies Act 2006, the Directors confirm that, as far as they are aware, there is no relevant audit information of which the Company’s independent auditor is unaware and that the Board has taken all reasonable steps to make itself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.
A resolution proposing the reappointment of Deloitte LLP as independent auditor will be put to the Annual General Meeting.
By Order of the Board
J GoodwinCompany Secretary10 July 2014
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South Staffordshire Plc (and its subsidiary undertakings “the Group”) seeks to apply the principles of the UK Corporate Governance Code (“the UK Code”), where considered applicable to a private, unlisted Group. The Group also applies the Walker Guidelines on transparency and disclosure. The Group regularly monitors corporate governance best practice and the applicability of any developments to the Group. Any changes to the Group’s governance arrangements considered appropriate are implemented within agreed timescales.
Regulated Company Corporate GovernanceIn January 2014, Ofwat (the Water Services Regulation Authority) published its principles on board leadership, transparency and governance and, following this, South Staffordshire Water PLC (a regulated licensed water undertaking) has developed its own Corporate Governance Code (“the SSW Code”) which seeks to meet and exceed these principles. Although South
Staffordshire Water PLC is not a public listed company, its Board of Directors recognises that it should act, where applicable, as if it were and therefore the SSW Code has also specifically drawn on certain principles of the UK Code that may be applicable to a privately owned regulated company. The SSW Code can be found on South Staffordshire Water PLC’s website (www.south-staffs-water.co.uk).
As the immediate parent company of South Staffordshire Water PLC, South Staffordshire Plc and its Board of Directors recognise the responsibilities that come from providing a public service and the Company is therefore fully committed to maintaining high standards of leadership, transparency and governance as a parent of a regulated business. The Company maintains an open dialogue with all of its subsidiaries and fully supports South Staffordshire Water PLC in complying with its statutory and regulatory obligations, including but not limited to Condition P of
its licence and the SSW Code and ensuring that it can make strategic and sustainable decisions that are in the long-term interests of the regulated business. Details of how South Staffordshire Water PLC follows the principles in the SSW Code are provided separately in its own Report and Accounts for the year ended 31 March 2014. Details of how South Staffordshire Plc, as the immediate parent of South Staffordshire Water PLC, follows Ofwat’s Holding Company Principles are detailed in this Corporate Governance report.
The Board can also confirm on behalf of KKR Infrastructure Limited that they, as the ultimate controlling party of the Group, also fully support these Holding Company Principles from Ofwat and will continue to apply high standards of board leadership and governance.
With the exception of the above, there have been no material changes to Corporate Governance arrangements during the year.
Corporate Governance
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The Board confirms that, to the best of its knowledge, there are no issues or risks at the Group level which may negatively impact on South Staffordshire Water PLC.
Group StructureThe Group is owned by the Global Infrastructure Fund of the investment business Kohlberg Kravis Roberts & Co. L.P. (KKR), which is quoted on the New York Stock Exchange, which hold a majority stake in the Group, together with infrastructure funds of certain co-investors of KKR. The KKR Infrastructure Funds are controlled and managed by KKR Infrastructure Limited, a company registered in the Cayman Islands (the “Holding Company”).
South Staffordshire Plc, as the immediate parent company of South Staffordshire Water PLC, ensures through its detailed knowledge of all of its subsidiaries and the water industry that it understands the duties and obligations of a regulated company including Condition P of its licence and, although some
Directors sit on both Boards, South Staffordshire Water PLC acts, where applicable, with the support of the Company, as if it were a separate listed company. South Staffordshire Plc has processes in place to provide South Staffordshire Water PLC with information that it requires about the wider Group. South Staffordshire Plc provides management and administrative support services to South Staffordshire Water PLC and other of its subsidiaries on a cost basis. There is no direct interaction between South Staffordshire Water PLC and the Holding Company.
There are a number of UK registered intermediate holding companies above South Staffordshire Plc in the Group structure, headed by Hydriades IV Limited, the ultimate holding company registered in the UK. There are also intermediate holding companies above Hydriades IV Limited which are registered in Jersey but which are resident in the UK for tax purposes. In line with other KKR investments in Europe, the parent of the Jersey resident
companies is a company registered in Luxembourg (Selena Luxco S.a.r.l.), which is the company in which the long-term infrastructure funds of KKR and their co-investors invest. The KKR funds investing in this company are controlled and managed by the Holding Company. Two of the UK holding companies have loans payable to South Staffordshire Water PLC, both of which bear interest which is paid in full each year. Any UK tax losses surrendered to South Staffordshire Water PLC are paid for at face value.
Details of the borrowings of the Group are provided in the financial statements including the analysis of net debt and the notes to the financial statements. Similarly, details of the borrowings of South Staffordshire Water PLC are provided in its own Report and Accounts. During the year to 31 March 2014 there were Eurobonds in place, issued by the highest UK holding company to a Cayman based parent company. However, following the acquisition by KKR the Cayman based company was liquidated and the Eurobonds were
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In compliance with the UK Code, all Board members are provided with sufficient information prior to any Board meeting to allow preparation time to ensure that they can properly discharge their duties.
The Board sets standards of conduct to promote the success of the Company, provides leadership, and reviews the Group’s internal controls, risk management policies and governance structure. It approves major financial and investment decisions over senior management thresholds and evaluates the performance of the individual businesses and the Group as a whole by monitoring reports received directly from the subsidiary businesses and those prepared at a Group level. The Non–Executive Directors, headed by the Chairman, have a duty to oversee this work, and to scrutinise management performance. They constructively challenge and help develop proposals on strategy.
All Directors and Senior Management are covered by Directors & Officers Insurance against any actions taken against them as Officers of the Group.
Senior Executives of KKR or its affiliates and its co-investors who hold positions on the Board of the Company are Jesús Olmos, Ram Kumar, both of whom are also Non-Executive Directors of South Staffordshire Water PLC and Directors of holding companies above South Staffordshire Plc in the Group structure, and Roger Ammoun. Adrian Page, Group Chief Executive of South Staffordshire Plc, is also the Chairman of South Staffordshire Water PLC and is a Director of all of South Staffordshire Plc’s subsidiaries and all of the UK registered holding companies in the Group structure.
Functions of the BoardUnder the UK Code, a company should be headed by an effective Board, with duties aligned to the success and interests of the company, setting strategic goals and ensuring that company strategy is fulfilled.
converted to equity. UK corporation tax relief available in respect of the interest on these Eurobonds that were considered to be issued at arm’s length was the subject of Advanced Thin Capitalisation Agreements between the issuing holding company and HMRC.
The Board of DirectorsThe Board is collectively responsible for the long-term success of the Group’s businesses. The Board comprises one Executive Director and three Non-Executive Directors.
Directors may be appointed by the Company by Ordinary Resolution or by the Board. As set out in the Company’s Articles of Association, a Director appointed by the Board will hold office until the next Annual General Meeting (AGM). At each AGM one third of the Directors will retire by rotation and will submit themselves for re-election at least once every three years.
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All Directors are aware of the procedure for those wishing to seek independent legal and other professional advice. The Board also has access to the advice and services of the Company Secretary.
Matters Reserved for the BoardA schedule of matters specifically reserved for the Board’s decision has been adopted based on Institute of Chartered Secretaries and Administrators (ICSA) best practice.
The terms include, but are not limited to:• Approvalofcapitalandoperating
budgets• Reviewingandapprovingthe
Group’s strategy• Reviewingandapprovingany
changes to the Group’s capital structure
• Reviewandapprovaloffinancialreports
• Reviewandapprovalofmajorcontracts
• Powerstodelegateauthority
with precise terms of reference, being used for specific routine purposes. Both the terms of reference and composition of the Committees are regularly reviewed to ensure their ongoing effectiveness.
The Directors are supported by an executive team and by other senior managers who have responsibility for assisting them in the development and achievement of the Group’s strategy and reviewing the financial and operational performance of the Group and its individual businesses. Senior Management is responsible, along with the Board, for monitoring policies and procedures and other matters that are not reserved for the Board. There are written procedures containing a regime of authorisation levels for key decision-making.
The Board carries out an informal evaluation of its own performance, the performance of the individual Directors and various Committees.
In conjunction with the Audit Committee, the Board is also responsible for the Group’s systems of internal control, evaluating and managing significant risks to the Company and the Group.
On joining the Board, Directors receive induction material appropriate to their needs. This may include information on the Group structure, the regulatory framework of the operating businesses within the Group and strategic and financial plans. The Board carries out site visits to maintain familiarity with the Group’s operations and to refresh their skills and knowledge. The Board also keeps up to date with legal and regulatory changes and developments by receiving written updates from both internal and external advisers.
The Board maintains a flexible approach to Board matters with the delegation of power to a Committee,
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The key terms of reference for the Committee are to:• Agreeremunerationthatwill
ensure that the Executive Director, the executive team and other senior management are provided with appropriate incentives to achieve high standards of performance and reward them for their individual contributions to the success of the Group
• Determinesuchpackagesandarrangements with regard to any relevant legal requirements and associated guidance and to obtain reliable, up-to-date information about remuneration in other companies
• Approvethedesignof,and determine targets for, any performance related remuneration packages operated within the Group
• Ensurethatcontractualtermson termination are fair and that failure is not rewarded
• Overseeanymaterialchangesin employee benefits structures throughout the Group.
and those of the executive team and other senior management. Non-Executive Directors do not receive any remuneration or fee from the Company.
The total remuneration package of the Executive Director, executive team and other senior management includes basic salary, benefits and an annual bonus that is linked to individual business and Group targets and performance related incentives. Performance related incentives are designed to encourage and reward continuing improvement in the Group’s performance. There is no longer a long-term incentive package provided by the Company.
Board Committees– Remuneration CommitteeThe Remuneration Committee is responsible for the remuneration policy of the Board, executive team and other senior management. No Director is involved in determining his or her own remuneration. During the year the Remuneration Committee comprised of Jesús Olmos, Ram Kumar and Adrian Page.
Whilst South Staffordshire Water PLC acts, where applicable, as though it were a separate public listed company, a limited number of matters in respect of this subsidiary company also need the approval of the Board of South Staffordshire Plc. These include:• MaterialsubmissionstoOfwat,
Competition Commission and similar agencies or bodies
• Contractsthatarematerialeitherstrategically or by reason of size, according to specified limits
• RemovalofanyDirector• Prosecution,defenceor
settlement of litigation above £1 million or being otherwise material
• MaterialchangestotheCompany’spension arrangements.
RemunerationRemuneration packages and fees are designed to attract, retain and motivate high-calibre senior executives. The Remuneration Committee has overall responsibility for determining the Executive Director’s remuneration package
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• Monitoringandreviewingtheeffectiveness of the Company’s Internal Audit function
• RecommendingtotheBoardthe appointment of the external auditor and monitoring the auditor’s independence, performance and effectiveness and approving the nature and scope of material external audits and approving the auditor’s remuneration.
The Audit Committee meets twice each financial year. The members of the Audit Committee are Ram Kumar and Adrian Page.
Deloitte LLP (the Group’s external independent auditor), the Company Secretary, the Group Internal Audit Manager and, where appropriate, other financial management are also invited to these meetings. The Board is satisfied that the members of the Audit Committee have recent and relevant financial experience and are able to approach matters with a level of independent judgement.
– Nomination CommitteeIn addition to conducting a rigorous process when making appointments to the Board, the Nomination Committee is responsible for reviewing the balance of skills and knowledge on the Board. It also keeps under review the possibility of any actual or potential conflicts of interest.
The Nomination Committee is formed on an ad hoc basis, when the need for an appointment to the Board is identified or as otherwise considered appropriate by the Board.
– Audit CommitteeThe main role and responsibilities of the Audit Committee are set out in written terms of reference and includes:• Monitoringtheintegrityof
the financial statements and reviewing significant financial reporting judgements contained therein
• ReviewingtheCompany’sinternalfinancial controls
The work of the Audit Committee specifically covers:
Group Business RisksIn order to facilitate the Group’s risk management process, key risks facing each business within the Group and the Group as a whole are regularly reviewed, documented and summarised by senior management. Every six months the management teams of each business formally discuss, review, approve and document the relevant business risks. The objective of this process is to ensure that each management team is identifying, prioritising and rating all key business risks, and implementing and amending, where necessary, appropriate procedures and controls as required to mitigate these risks. It also allows management to highlight, document and prioritise as appropriate any outstanding actions with respect to the implementation of these procedures and controls. The Internal Audit function also critically assesses the risks, controls and procedures
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Annual Report 2014
identified and the rating assigned to them. This information is reviewed by the Audit Committee.
Internal Audit WorkEvery year the Audit Committee receives an Internal Audit report on the progress with the annual audit plan, the results of the Internal Audit work together with agreed management actions in relation to audit recommendations.
The audit work covers financial and operational risk assurance, regulatory assurance, legal compliance, testing of financial controls and other business commercial support work. External AuditorsDeloitte LLP attend the Audit Committee meetings and provide detailed reports regarding audit planning and the results of their external independent audit.
The responsibilities of the external independent auditor in the area of financial reporting are set out in their report in each year’s Annual Report.
Accountability and Audit– Financial Reporting and SystemsThe Board of Directors recognises the need to present a balanced, understandable and clearly defined assessment of the Group’s operational and financial performance and position including its future prospects. This is provided by a review of the Group’s performance as set out in the Strategic Report of each year’s Annual Report.
Business plans, annual budgets and investment proposals for each business, and for the Group, have been formally prepared, reviewed and approved by the Board. These include profit and loss and cash flow forecasts. Actual financial results and cash flows, including a comparison with budgets and forecasts, are regularly reported to the Board with variances being identified and
used to initiate any action deemed appropriate. Forecasts of the Group’s compliance with its borrowing covenants are also prepared on a regular basis, as is the Group’s level of its undrawn and available borrowing facilities for liquidity purposes.
– Internal ControlThe Board attaches considerable importance to its system of internal control and for reviewing its effectiveness, including its responsibility for taking reasonable steps for the safeguarding of the assets of the Company and the Group and for preventing and detecting fraud and other irregularities. Such a system is designed to manage rather than eliminate the risk, and can nonetheless provide only reasonable and not absolute assurance against misstatement or loss. There is an established internal control framework within the Group that is continually reviewed and updated taking into account the nature of the Group’s operations.
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– Internal AuditSpecific topics covered by Internal Audit during the year included but were not limited to:• Accountingandfinancial
management• Reviewofbusinessrisks• CompliancewithSenior
Accounting Officer Regulations• Reviewofpayrollservices• ReviewofareplacementCapital
Assets system• Regulatoryreporting• Contractualcompliance.
A formal annual Group Internal Audit Plan was presented to and approved by the Audit Committee. The Plan seeks to examine and evaluate the effectiveness of the control environment and test specific areas considered a priority. The Plan combines both the need for financial reporting assurance and risk control with the desire to provide independent resource to improve an organisation’s operations. Progress against the Plan is monitored by
the Audit Committee. Findings and recommendations arising from the work performed are reported to the Audit Committee at the appropriate time.
The Internal Audit arrangements in operation are considered appropriate to the size and complexity of the Group but the Audit Committee will continue to review these arrangements on a regular basis. – Organisational StructureA defined organisation structure for the Group exists with clear lines of responsibility, accountability and appropriate division of duties.
The Board sets overall policy and has delegated the necessary authority to management and business departments in order to fulfil that policy. This is communicated to employees by way of published policies and procedures and regular management briefings.
The Group’s extensive financial regulations specify authorisation limits for individual managers, with all material transactions being approved by a member of the Executive Team, the Board or by the Board collectively. In addition, formal treasury policies are in place. Where appropriate, commercial and financial responsibility is clearly delegated to individual business units and supported by the Board.
– Risk ManagementThe Group’s approach to risk balances the need to manage exposure to risk whilst at the same time aiming to improve the Group’s operational and financial performance.
South Staffordshire Water PLC’s approach to risk reflects its status as a regulated and licensed water undertaking providing an essential public service. As detailed above, a strong risk management and control framework is in place to understand and manage identified risks.
50
Annual Report 2014
The non-regulated businesses operate principally in regulated environments and, as such, must also have strong risk control management.
Risk management is discussed at Board level both in terms of the Group and its businesses on a regular basis. As detailed above, the Group’s individual businesses are required to monitor risk and its management with any significant changes in business risk and any subsequent procedures or controls to mitigate the risk being reported to the Audit Committee.
A description of the Group’s principal risks and uncertainties can be found in the Financial Review section of the Strategic Report on pages 26 to 31.
– External Independent AuditorThe Board, assisted by the Audit Committee, reviews each year the external independent auditor’s performance, effectiveness and fees including the level of non-audit services and fees.
In evaluating the external independent auditor, the Audit Committee assesses the calibre of the external audit firm, the audit scope and plan which is agreed in advance with the Audit Committee and the level and nature of audit communications, including the reporting to the Audit Committee of the audit results.
Going ConcernThe Directors consider each year the appropriateness of the assumption of preparing the financial statements on a going concern basis. This is based upon a review of the Company’s and the Group’s budget, the business plan, financial forecasts, the investment programme, forecast compliance with borrowing covenants and also based on the Group’s strong track record of renewing or replacing the Group’s borrowing facilities when they mature to provide liquidity.
Relations with ShareholdersThe Board ensures that a regular and detailed dialogue with shareholders takes place. This is achieved through regular management and Board meetings that shareholders attend and through other less formal communication.
51
The following statement, which should be read in conjunction with the auditors’ statement of their responsibilities set out on the following pages, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the auditors in relation to the accounts.
The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and the profit or loss of the company for that period.
In preparing these financial statements, the Directors are required to:• selectsuitableaccountingpolicies
and then apply them consistently;• makejudgmentsandaccounting
estimates that are reasonable and prudent;
• statewhetherapplicableUKAccounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• preparethefinancialstatementsonthe going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm that they have complied with the above requirements in preparing the accounts.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company
and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors, having prepared the accounts, are required to provide the auditors with such information and explanation as the auditors think necessary for the performance of their duty.
The Directors have responsibility for the maintenance and integrity of the Company’s website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of accounts may differ from legislation in other jurisdictions.
Directors’ Responsibilities Statement
Annual Report 2014
52
We have audited the financial statements of South Staffordshire Plc for the year ended 31 March 2014 which comprise the consolidated profit and loss account, the consolidated and individual Company balance sheets, the consolidated statement of total recognised gains and losses, the reconciliation of movements in consolidated shareholders’ funds, the consolidated cash flow statement, notes to the consolidated cash flow statement, and the related notes 1 to 31. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditorAs explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the
Independent Auditor’s Report
Annual Report 2014
53
Independent Auditor’s Report
David Hall FCA(Senior Statutory Auditor)for and on behalf of Deloitte LLPChartered Accountants and Statutory AuditorBirmingham, UK15 July 2014
Matters on which we are required to report by exceptionWe have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records
have not been kept by the parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Opinion on financial statementsIn our opinion the financial statements:• give a true and fair view of the
state of the Group’s and of the parent Company’s affairs as at 31 March 2014 and of the Group’s profit for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Annual Report 2014
54
Consolidated Profit & Loss AccountFor the year ended 31 March 2014
2014 2013 Note £’000 £’000
Group turnover 2 224,701 205,027
Operating costs before goodwill amortisation (net) 3 (173,443) (158,734)
Group operating profit before goodwill amortisation 51,258 46,293
Share of joint ventures’ operating loss — (2)
Total operating profit before goodwill amortisation 51,258 46,291
Goodwill amortisation 11 (3,753) (3,501)
Total operating profit 2 47,505 42,790
Finance charges (net) 7 (12,420) (13,127)
Profit on ordinary activities before taxation 35,085 29,663
Taxation on profit on ordinary activities 8 (1,346) (951)
Profit on ordinary activities after taxation 33,739 28,712
Less profit after tax of minority interests 26 (18) (29)
Profit for the financial year 33,721 28,683
Earnings per share Basic and diluted 10 263.0p 223.7p
A statement of movements in reserves is given in note 24 to the financial statements.
The results above are all derived from continuing operations. The results of the businesses acquired during the year are disclosed seperately in note 2 to the financial statements.
The accompanying notes are an integral part of these financial statements.
55
Consolidated Balance SheetAs at 31 March 2014
2014 2013 Note £’000 £’000
Fixed assets Intangible assets - goodwill 11 27,152 29,698 Tangible assets 12 309,028 302,086 Investments - share of joint ventures’ net assets 15 — 33
336,180 331,817Current assets Stocks 16 2,386 2,272 Debtors - amounts recoverable within one year 17 53,724 51,688 Debtors - amounts recoverable in more than one year 17 100,833 102,053 Cash at bank and in hand 8,147 7,689
165,090 163,702Creditors – amounts falling due within one year Borrowings 18 (10,044) (62,402) Other creditors 19 (66,060) (67,791)
(76,104) (130,193)
Net current assets 89,986 33,509
Total assets less current liabilities 425,166 365,326
Creditors – amounts falling due in more than one year Borrowings 18 (347,859) (299,154) Other creditors 19 (12,648) (16,385) Accruals and deferred income 14 (8,854) (8,524) Provisions for liabilities - deferred tax 20 (10,830) (13,610)
(380,191) (337,673)
Retirement benefit surplus 21 12,167 12,491
Net assets 57,142 40,144
Capital and reserves Share capital 23 5,449 5,449 Share premium account 24 10,882 10,882
Capital redemption reserve 24 1 1Merger reserve 24 (253) (253)Currency translation reserve 24 (7) (3)Hedging reserve 24 (4,942) (7,010)Profit and loss account 24 45,952 31,036
Shareholders’ funds 57,082 40,102Minority interests 26 60 42
Total capital employed 57,142 40,144
The accompanying notes are an integral part of these financial statements. The financial statements of South Staffordshire Plc, registered number 4295398, were approved by the Board of Directors and authorised for issue on 10 July 2014.
A P PageGroup Chief Executive
56
2014 2013 Note £’000 £’000
Fixed assets Investments 15 100,738 100,738 Tangible assets 12 437 345
101,175 101,083
Current assets Debtors - amounts recoverable within one year 17 10,214 9,388 Debtors - amounts recoverable in more than one year 17 79,995 62,558 Cash at bank and in hand 4,240 4
94,449 71,950Creditors – amounts falling due within one year Borrowings 18 (14,207) (60,954) Other creditors 19 (8,520) (10,268)
(22,727) (71,222)
Net current assets 71,722 728
Total assets less current liabilities 172,897 101,811
Creditors – amounts falling due in more than one year Borrowings 18 (119,338) (75,589) Other creditors 19 (538) (1,372)
Net assets 53,021 24,850
Capital and reserves Share capital 23 5,449 5,449 Share premium account 24 10,882 10,882 Capital redemption reserve 24 1 1 Hedging reserve 24 40 (1,634) Profit and loss account 24 36,649 10,152
Shareholders’ funds 53,021 24,850
The accompanying notes are an integral part of these financial statements. The financial statements of South Staffordshire Plc, registered number 4295398, were approved by the Board of Directors and authorised for issue on 10 July 2014.
A P PageGroup Chief Executive
Company Balance SheetAs at 31 March 2014
57
Consolidated Statement of Total Recognised Gains & LossesFor the year ended 31 March 2014
Reconciliation of Movements in Consolidated Shareholders’ FundsFor the year ended 31 March 2014
2014 2013 £’000 £’000 Profit on ordinary activities after taxation 33,739 28,712Actuarial (loss)/gain relating to retirement benefit surplus Actual return less expected return on schemes’ assets (6,047) 14,173 Experience gain arising on schemes’ liabilities 316 947 Loss due to changes in assumptions underlying schemes’ liabilities — (12,666)Gain/(loss) due to movement in the pension asset limit 576 (2,251)Deferred tax on actuarial loss/(gain) and movement on the pension asset limit 1,031 (46)Impact of the change in future tax rates on the retirement benefit surplus brought forward 487 122Movement on hedging reserve (net of deferred tax) 2,068 2,692Exchange movement on translation of overseas operations (4) (4)
Total recognised gains and losses relating to the year 32,166 31,679
2014 2013 £’000 £’000
Profit for the financial year 33,721 28,683Actuarial (loss)/gain and movement on asset limit relating to retirement benefit surplus (net of deferred tax) (3,637) 279Movement on hedging reserve (net of deferred tax) 2,068 2,692Exchange movement on translation of overseas operations (4) (4)Dividends paid or proposed (note 9) (15,168) (20,023)
Net addition to shareholders’ funds 16,980 11,627
Opening consolidated shareholders' funds 40,102 28,475
Closing consolidated shareholders’ funds 57,082 40,102
The accompanying notes are an integral part of these financial statements.
58
2014 2013 Note £’000 £’000 £’000 £’000
Net cash inflow from operating activities (a) 75,035 65,957
Returns on investments and servicing of finance: Interest paid (net of interest received) (7,856) (7,657) Interest element of finance lease and hire-purchase rental payments (84) (157)
Net cash outflow from returns on investments and servicing of finance (7,940) (7,814)
Taxation: Corporation tax paid (2,425) (3,706)
Capital expenditure and financial investment: Purchase of tangible fixed assets (42,071) (46,149) Proceeds from sale of tangible fixed assets 212 193 Capital contributions received 6,237 5,195
Net cash outflow from capital expenditure and financial investment (35,622) (40,761)
Free cash flow 29,048 13,676
Acquisitions and disposals: Cash consideration for businesses acquired (including costs) (4,122) (4,906) Cash balances acquired (net) 399 515 Short-term bank loans of business disposed (net) — 942
Net cash outflow from acquisitions and disposals (3,723) (3,449)
Equity dividends paid (15,168) (20,654)
Financing: Repayment of bank term loans (45,000) (60,000) Additions to bank term loans 59,763 21,500 Bank term loan issue costs paid (487) (809) Repayment of private placement loan notes (15,763) — Additions to private placement loan notes — 56,763 Private placement loan note issue costs paid — (554) Repayment of loans receivable — 1,896 Repayment of irredeemable debenture stock (146) — Capital element of finance lease and hire-purchase rental payments (781) (804)
Net cash (outflow)/inflow from financing (2,414) 17,992
Increase in cash (net of short-term bank loans) 7,743 7,565
The accompanying notes are an integral part of these financial statements.
Consolidated Cash Flow StatementFor the year ended 31 March 2014
59
(a) Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 2014 2013 £’000 £’000 £’000 £’000
Total operating profit: Group and share of joint ventures’ 47,505 42,790Depreciation (non-infrastructure assets) 18,696 17,094 Depreciation (infrastructure assets) 10,917 11,369Amortisation of goodwill 3,753 3,501Amortisation of capital contributions (692) (671) Defined benefit pension scheme current service cost (employer) 1,794 1,698 Defined benefit pension scheme contributions (employer) (4,142) (4,184)Profit on disposal of tangible fixed assets (112) (205)
30,214 28,602
Share of operating loss in joint ventures — 2(Increase)/decrease in stocks (114) 459Increase in debtors (1,201) (7,011)(Decrease)/increase in creditors (1,369) 1,115
(2,684) (5,437)
Net cash inflow from operating activities 75,035 65,957
(b) Reconciliation of Movement in Net Debt 2014 2013 £’000 £’000
Increase/(decrease) in cash 458 (3,620)Decrease in drawings on short-term bank loans 7,285 11,185
7,743 7,565Finance lease repayments (cash) 781 804Assets purchased under finance leases (net of disposals, non-cash) (18) (488)Finance lease obligations acquired from acquisitions in the year (non-cash) (6) (27)(Issue) / repayment of bank term loans (net of issue costs-cash) (14,276) 39,309Bank term loan issue cost amortisation (non-cash) (239) (374)Repayment / (issue) of private placement loan notes (net of issue costs-cash) 15,763 (56,209)Private placement issue cost amortisation (non-cash) (92) (21)Repayment of irredeemable debenture stock (cash) 146 —Movement on index-linked debt (non-cash) (5,691) (5,512)
Reduction/(increase) in net debt in the year 4,111 (14,953)Net debt brought forward (353,867) (338,914)
Net debt carried forward (349,756) (353,867)
Notes to the Consolidated Cash Flow StatementFor the year ended 31 March 2014
60
(c) Analysis of Net Debt Balance at Balance at 1 April Acquisitions Non-Cash 31 March 2013 and Disposals Cash Flow Movements 2014 £’000 £’000 £'000 £'000 £’000
Cash at bank and in hand 7,689 399 59 — 8,147Drawings on short-term bank loans (16,394) — 7,285 — (9,109)
(8,705) 399 7,344 — (962)Irredeemable debenture stock (1,825) — 146 — (1,679)Index-linked debt (net of issue costs) (194,412) — — (5,691) (200,103)Bank term loans (net of issue costs) (90,670) — (14,276) (239) (105,185)Private placement loan notes (net of issue costs) (56,230) — 15,763 (92) (40,559)Obligations under finance leases and hire-purchase contracts (2,025) (6) 781 (18) (1,268)
Net debt (353,867) 393 9,758 (6,040) (349,756)
Non-cash movements represent indexation, amortisation of issue costs, amortisation of the discount/premium on index-linked debt and the inception of new finance leases net of disposals. The book value of net debt detailed above differs from the value used for covenant reporting purposes of £337,689,000 (2013: £341,800,000). Index-linked debt used for covenant reporting is the indexed principal whereas in accordance with applicable accounting standards the book value represents amortised cost. Also, bank loans and private placement loan notes for covenant purposes are reported at principal value before costs whereas the book value above includes un-amortised costs.
Notes to the Consolidated Cash Flow StatementFor the year ended 31 March 2014
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Notes to the Financial Statements1 Statement of Accounting Policies
The principal accounting policies are summarised below, which have all been applied consistently throughout the year and the preceding year.
(a) Basis of AccountingThe accounts have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards. In order to show a true and fair view, the Company has departed from the requirements of the Companies Act 2006 in respect of merger accounting for group reconstructions and in respect of accounting for capital contributions. Further details are provided in (b) and (g) below respectively.
The Directors have considered the assumptions for preparing the accounts on a going concern basis. These are set out in the Corporate Governance report.
(b) Basis of ConsolidationThe Group accounts consolidate the accounts of the Company and its subsidiary undertakings made up to 31 March each year.
In accordance with Financial Reporting Standard Number 6, certain group reorganisations which took place in previous years have been accounted for using merger accounting principles, in order to meet the overriding requirement under section 393 of the Companies Act 2006 for financial statements to present a true and fair view. The transactions accounted for using these principles did not meet all of the conditions for merger accounting under the Companies Act 2006, namely that the fair value of any non-equity consideration must not exceed 10 per cent of the nominal value of equity shares issued as consideration. However, the Directors consider that in substance the consideration for these transactions comprised equity share capital with no
net cash impact and that the alternative approach of acquisition accounting, with the restatement of separable assets and liabilities to fair values, the creation of goodwill, and the inclusion of post reorganisation results only would not give a true and fair view of the Group's results and financial position. The substance of the transactions was not the acquisition of businesses but rather a group reconstruction under which the ultimate shareholders of the businesses transferred and their rights relative to the others remained unchanged. The Directors consider that it is not practicable to quantify the effect of this departure from the Companies Act 2006 requirements.
Other business combinations have been accounted for under the acquisition method.
(c) TurnoverSouth Staffs Water turnover includes amounts billed together with an estimation of amounts for water supply services provided but remaining unbilled at the year-end.
Software licence income is recognised within turnover once software implementation and customer acceptance are complete. Income from separate software maintenance contracts is recognised evenly over the contract period to which it relates. Income generated through the performance of software development and consultancy services is included within turnover on the basis that turnover is matched with the delivery of the service.
Contract accounting is applied to certain contracts the Group is a party to. Where the outcome of the contract can be assessed with reasonable certainty, attributable turnover and profit are calculated on an appropriate and prudent basis and included in the accounts for the period under review. Where a contract loss is anticipated, the entire anticipated loss is recognised immediately.
Turnover of other non-regulated activities represents amounts receivable excluding VAT, from the sale of goods and services.
(d) DividendsDividends are recognised if they have been paid or if they have been approved by the shareholders before the year-end.
(e) GoodwillGoodwill arising on acquisitions represents the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired. Goodwill is amortised over its estimated useful life of 10 to 20 years.
(f ) Tangible Fixed Assets and DepreciationTangible fixed assets comprise infrastructure assets (including water mains, impounding and pumped raw water storage reservoirs and dams), specialist operational assets (including pumping stations, treatment stations, boreholes and service reservoirs), land and buildings and other assets including fixed plant and equipment.
Infrastructure AssetsInfrastructure assets comprise networks of systems that, as a whole, are intended to be maintained in perpetuity at a specified level of service by the continuing replacement and refurbishment of their components. Expenditure on infrastructure assets relating to increases in capacity or enhancements of the networks and on maintaining the operating capability of the networks in accordance with defined standards of service are treated as additions which are included at cost.
The depreciation charge for infrastructure assets is the level of annual expenditure required to maintain the operating capability of the network which is based on the relevant company’s independently certified asset management plan.
62
Other AssetsOther assets are stated at cost less accumulated depreciation and any provision for impairment. Depreciation is provided on a straight line basis to write off the cost less estimated residual value over the estimated useful lives of the assets, with the exception of land which is not depreciated. The estimated useful lives of assets are as follows:
Boreholes 100 yearsBuildings and Service Reservoirs Up to 80 yearsFixed Plant Up to 30 years Water Meters Up to 20 yearsOffice Equipment Up to 20 yearsMobile Plant Up to 20 yearsMotor Vehicles 3–7 years
(g) Capital ContributionsCapital contributions are treated as deferred income and amortised over the estimated useful lives of the assets concerned, except in the case of contributions towards the cost of infrastructure assets, which are not amortised. This departure from the requirements of the Companies Act 2006 is, in the opinion of the Directors consistent with industry accounting practice and is necessary for the financial statements to show a true and fair view as it is not possible to amortise contributions to the profit and loss account over the lives of the fixed assets concerned, as infrastructure assets do not have determinable finite lives as they are maintained in perpetuity.
(h) Leased AssetsAssets financed by leasing and hire-purchase arrangements which transfer substantially all the risks and rewards of ownership to the Group are included in tangible fixed assets, and the net obligation to pay future rentals is included as borrowings within creditors. Rentals are apportioned between finance charges and a reduction of the outstanding liability for future rentals so as to produce a constant charge to the profit and loss account based upon the capital outstanding. Operating
lease rentals are charged to the profit and loss account on a straight line basis.
(i) InvestmentsInvestments held as fixed assets are stated at cost less amounts written off and any provision for impairment. In accordance with Section 611 of the Companies Act 2006, the cost of shares acquired from a fellow group undertaking by way of a share for share exchange are recorded at the higher of the nominal value of the shares issued as consideration and the carrying value of the investment in the transferring company.
(j) StocksStocks are valued at the lower of cost and net realisable value. Cost includes an appropriate element of overheads. Provision is made for obsolete, slow moving or defective items where appropriate.
(k) Foreign CurrencyTransactions in foreign currencies are recorded at the rate of exchange at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at that date.
The results of overseas operations are translated at the average rates of exchange during the year and their balance sheets at the rates prevailing at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas operations and on foreign currency borrowings, to the extent that they hedge the Group’s investment in such operations, are reported in the consolidated statement of total recognised gains and losses. All other exchange differences are included in the profit and loss account.
(l) PensionsThe profit and loss charge in respect of defined benefit pension schemes represents:
- the increase in the present value of scheme liabilities expected to arise from employee service in the year. This is charged against operating profit.
- the difference between the unwinding of the discount on scheme liabilities and the expected return on scheme assets. This is charged or credited within finance charges (net).
Actuarial gains and losses are charged or credited directly to the consolidated statement of total recognised gains and losses net of deferred tax. The defined benefit schemes’ liabilities, valued using the projected unit method and the fair value of schemes’ assets, are recognised in the consolidated balance sheet (net of deferred tax) as a net retirement benefit obligation or surplus. In the case of a surplus, this is recognised in the consolidated balance sheet to the extent that the Group is legally entitled to recover the surplus in the future either through reduced contributions to schemes, or refunds from schemes.
In respect of the Group defined contribution schemes the amounts charged to the profit and loss account are the contributions payable in the year.
(m) Research and DevelopmentResearch and development expenditure is charged to the profit and loss account in the year in which it is incurred.
Notes to the Financial Statements
63
(n) TaxationCorporation tax payable is provided on taxable profits at the current rate. Deferred tax is provided in respect of capital allowances in excess of depreciation and all other timing differences that have originated but not reversed at the balance sheet date using future tax rates that have been enacted at the balance sheet date. The balance is discounted, using the yield to maturity on government gilts, to reflect the time value of money over the period between the balance sheet date and the date on which the timing differences are expected to reverse. A deferred tax asset is recognised only when, on the basis of all available evidence, it is regarded as more likely than not that there will be suitable taxable profits from which the reversal in the future can be deducted.
(o) Financial Instruments Financial Assets All financial assets, being cash and cash
equivalents, debtors and loans receivable, are categorised as “loans and receivables” which are measured at amortised cost. Cash and cash equivalents comprise cash at bank and in hand and short-term deposits.
Financial LiabilitiesFinancial liabilities other than derivative financial liabilities (see Hedge Accounting below) are initially measured at fair value and subsequently measured at amortised cost. The premium/discount and costs of issue are amortised over the life of the instrument, with the amortisation being included in the effective interest rate of the instrument which is included in finance charges (net) in the profit and loss account.
(p) Hedge AccountingThe Group designates certain hedging instruments, including derivatives, as cash flow hedges. At inception of the hedge relationships, the Group documents the relationships between the hedging instruments and the hedged items along with the Group’s risk management strategy and objectives in relation to each hedge. At the inception of the hedges, and on an ongoing basis, the Group documents whether the hedging instruments are highly effective in offsetting changes in cash flows of hedged items.
The effective proportion of changes in fair value of hedging instruments that are designated and qualify as cash flow hedges are deferred in equity (net of tax) in a hedging reserve. The gain or loss relating to the ineffective proportion is recognised immediately in the profit and loss account. The amounts deferred in the hedging reserve are recycled to the profit and loss account in the periods when the hedged items are recognised in the profit and loss account.
Hedge accounting is discontinued when the Group de-designates the hedging relationships, the hedging instruments expire, are terminated or are sold or they no longer qualify for hedge accounting. Any cumulative gain or loss that remains in the hedging reserve at that time is recognised when hedged forecast transactions are ultimately recognised in the profit and loss account. When forecast transactions are no longer expected to occur, the cumulative gains or losses are recognised immediately in the profit and loss account.
(q) Related Party TransactionsAs at 31 March 2014, the Company was an indirectly wholly owned subsidiary undertaking of Hydriades IV Limited, the ultimate parent company in the United Kingdom. As such, the Company has taken advantage of the exemption in FRS 8 “Related Party Disclosures” from disclosing transactions with other members of the group headed by Hydriades IV Limited, as consolidated financial statements for this company in which the accounts of the Company and its subsidiaries are included, are publicly available. The Group has no other related party transactions requiring disclosure other than those disclosed in note 30.
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2 Segmental Information
Turnover 2014 2013 £’000 £’000
South Staffs Water 122,504 117,314Inter-divisional (978) (778)
South Staffs Water (external) 121,526 116,536
Non-regulated service businesses: Existing operations 128,469 110,494 Acquisitions 1,065 3,115
Total non-regulated service businesses 129,534 113,609Inter-divisional (26,359) (25,118)
Non-regulated service businesses (external) 103,175 88,491
Turnover 224,701 205,027
Operating Profit 2014 2013 £’000 £’000
South Staffs Water 35,858 33,313
Non-regulated service businesses: Existing operations 11,558 9,096 Acquisitions 89 381
Total non-regulated service businesses 11,647 9,477
Total operating profit 47,505 42,790
Notes to the Financial Statements
65
Net Operating Assets 2014 2013 £’000 £’000
South Staffs Water 258,751 270,613Non-regulated service businesses 38,384 16,832
Net operating assets 297,135 287,445
Net debt (book value) (349,756) (353,867)Goodwill 27,152 29,698Loans receivable in more than one year 96,671 97,908Other non-operating net liabilities (11,290) (16,367)Corporation tax payable (4,107) (3,554)Retirement benefit surplus 12,167 12,491Provisions for liabilities - deferred tax (10,830) (13,610)
Net assets 57,142 40,144
The Directors do not consider the turnover, operating profit and net operating assets arising outside of the United Kingdom to be material to the Group and as such these have not been separately disclosed.
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3 Operating Costs Before Goodwill Amortisation (net) 2014 2013 £’000 £’000
Other operating income (note 6) (1,028) (1,285)Raw materials and consumables 22,366 22,926Staff costs (note 4) 74,665 67,516Depreciation (non-infrastructure assets) 18,696 17,094Depreciation (infrastructure assets) 10,917 11,369Amortisation of capital contributions (692) (671)Operating lease rentals: plant and machinery 185 150 other 3,118 2,746Other operating costs 45,216 38,889
173,443 158,734
The Group auditor’s remuneration is analysed as follows: 2014 2013 £'000 £'000
Fees payable to the Company's auditor for the audit of the Company's annual accounts 20 20
The audit of other Group undertakings pursuant to legislation 151 149
Total audit fees 171 169
Other services pursuant to legislation 12 12 Tax services 50 31
Total non-audit fees 62 43
Notes to the Financial Statements
67
4 Staff Costs 2014 2013 £’000 £’000
Wages, salaries and bonuses 65,625 59,259Social security costs 6,047 5,600Pension costs 2,993 2,657
74,665 67,516
2014 2013 Number Number
Average number of employees South Staffs Water 511 508 Non-regulated service companies 1,859 1,685
2,370 2,193
5 Directors’ Remuneration
The remuneration of the Directors of the Company, for the year ended 31 March 2014, is set out below.
2014 2013 £’000 £’000
Emoluments 621 435
There was 1 Director holding office at 31 March 2014 accruing benefits under a Group defined benefit pension scheme (2013: 1 Director) and no Directors were contributing members of a Group money purchase pension scheme (2013: No Directors). There were no contributions paid by the Group to money purchase pension schemes in respect of Directors during the year (2013: £Nil). No Directors received or exercised share options or had share interests under a share-related long-term incentive plan that vested during either year.
The highest paid Director received emoluments of £621,000 (2013: £435,000) during the year including payment under the Long Term Incentive Plan introduced by the Company’s previous owner (2013: £Nil) and which terminated on the change of ownership. He is a member of a Group defined benefit pension scheme which provided for an accrued pension of £60,000 (2013: £54,000) and an accrued lump sum of £179,000 at 31 March 2014 (2013: £163,000). There were no Group contributions to a money purchase pension scheme in respect of the highest paid Director (2013: £Nil).
None of the Directors had a material interest in any contract to which the Group was party during the year or the preceding year.
68
6 Other Operating Income
2014 2013 £'000 £’000
Profit on disposal of tangible fixed assets 112 205Rental income 916 1,080
1,028 1,285
7 Finance Charges (net)
2014 2013 £’000 £’000
Interest payable and similar charges Index-linked debt (cash) 6,734 6,537 Index-linked debt (non-cash) 5,691 5,512 Bank term loan, drawings on short-term bank loans and other interest payable (net) 5,511 7,803 Private placement loan notes 2,159 514 Finance leases and hire-purchase contracts 85 169 Irredeemable debenture stock 72 75
20,252 20,610
Interest receivable Interest on loans to parent undertakings (6,228) (6,297)
14,024 14,313
Other finance income (net) Defined benefit pension scheme interest cost 9,069 9,028 Expected return on defined benefit pension scheme assets (restricted) (10,863) (10,407) Amounts recycled from hedging reserve 190 193
12,420 13,127
Notes to the Financial Statements
69
8 Taxation on Profit on Ordinary Activities
The tax charge for the year comprises: 2014 2013 £’000 £’000
Current tax Current year 4,765 3,710 Adjustment in respect of prior years (563) (1,280)
Total current tax charge 4,202 2,430
Deferred tax Pension cost timing differences 828 893 Origination and reversal of other timing differences (543) (150) Impact of changes in future tax rates (before discount) (3,240) (1,099) Decrease/(increase) in discount 404 (1,663) Adjustment in respect of prior years (305) 540
Total deferred tax credit (2,856) (1,479)
Total tax charge 1,346 951
The principal differences between the current corporation tax rate for the Group of 12.0% (2013: 8.2%), based on the profit before tax and the standard rate of corporation tax of 23.0% (2013: 24.0%) are as follows:
2014 2013 % %
Standard rate of corporation tax 23.0 24.0Expenses not deductible for tax purposes (net) 2.1 2.0Pension cost timing differences (2.7) (3.1)Depreciation in excess of capital allowances (net) 0.8 (1.3)Group relief received and not paid for (10.6) (11.0)Adjustments in respect of prior years (1.6) (4.3)Other timing differences 1.0 1.9
Current corporation tax rate for the year 12.0 8.2
70
9 Dividends Paid or Proposed 2014 2013 £’000 £’000
Equity interests Ordinary final dividend paid in respect of the previous financial year of 51.5p (2013: 31.3p) per share 6,600 4,010 Ordinary interim dividend paid of 66.8p (2013: 124.9p) per share 8,568 16,013
15,168 20,023
10 Earnings per Share
The calculation of earnings per share is based on profit for the financial year divided by the weighted average number of shares in issue during the year. The calculations of earnings per share are based on the following profits and number of shares:
2014 2013 £’000 £'000
Profit for the financial year and profit for earnings per share 33,721 28,683
2014 2013 Number of Number of Shares Shares
Weighted average number of sharesfor basic and diluted earnings per share 12,819,856 12,819,856
Notes to the Financial Statements
71
11 Goodwill
Group £’000
Cost At 1 April 2013 41,275 Aquisitions in the year 994 Adjustments in respect of prior year acquisitions 213
At 31 March 2014 42,482
Amortisation At 1 April 2013 11,577 Charge for the year 3,753
At 31 March 2014 15,330
Net Book ValueAt 31 March 2014 27,152
At 31 March 2013 29,698
Details of acquisitions made during the year and the resulting goodwill acquired are provided in note 27.
During the year ended 31 March 2014 adjustments were made in respect of goodwill on prior year acquisitions of £213,000 reflecting adjustments made in the year to the provisional fair values of consideration and the acquired assets and liabilities as reported last year.
72
12 Tangible Fixed Assets Group Infra- Specialised Land and structure Fixed Plant & Operational Buildings Assets Equipment Assets Total £’000 £’000 £’000 £’000 £’000
Cost At 1 April 2013 26,785 254,050 172,962 168,936 622,733 Additions 217 18,421 8,839 14,612 42,089 Capital contributions received — (5,156) — — (5,156) Disposals (3) (1,207) (822) (5,637) (7,669) Acquisitions 2 — 47 — 49
At 31 March 2014 27,001 266,108 181,026 177,911 652,046
Depreciation At 1 April 2013 6,175 150,321 90,710 73,441 320,647 Charge for the year 405 10,917 8,332 9,959 29,613 Disposals — (1,207) (732) (5,303) (7,242)
At 31 March 2014 6,580 160,031 98,310 78,097 343,018
Net Book ValueAt 31 March 2014 Owned 20,421 101,850 81,364 98,691 302,326 Leased — 4,227 1,352 1,123 6,702
20,421 106,077 82,716 99,814 309,028
At 31 March 2013 Owned 20,610 99,502 80,391 94,043 294,546 Leased — 4,227 1,861 1,452 7,540
20,610 103,729 82,252 95,495 302,086
Infrastructure renewals expenditure and the charge to the profit and loss account have been included within infrastructure assets cost and accumulated
depreciation respectively. The net book value of infrastructure assets is stated net of capital contributions. The balance of capital contributions at 31 March 2014 and movements in the year are set out in note 14.
Freehold land of £2,461,000 (2013: £2,464,000) included above is not subject to depreciation.
Notes to the Financial Statements
73
Company Land & Plant & Total Buildings Equipment £’000 £’000 £'000Cost At 1 April 2013 80 359 439 Additions — 188 188
At 31 March 2014 80 547 627
Depreciation At 1 April 2013 — 94 94 Charge for the year — 96 96
At 31 March 2014 — 190 190
Net Book Value
At 31 March 2014 80 357 437
Net Book Value
At 31 March 2013 80 265 345
Freehold land of £80,000 (2013: £80,000) held at 31 March 2014 was not subject to depreciation.
None of the tangible fixed assets of the Company were financed by finance leases or hire purchase agreements.
13 Capital Commitments
Group capital commitments outstanding at 31 March 2014 were £2,731,000 (2013: £2,349,000).
The Company had no capital commitments at either year-end.
74
14 Capital Contributions Group Infrastructure Other
Assets Assets £’000 £’000
Balance at 1 April 2013 131,485 8,524Capital contributions received 5,156 1,022Disposals (566) —Amortised in the year — (692)
Balance at 31 March 2014 136,075 8,854
Capital contributions in respect of other assets are included in the consolidated balance sheet in accruals and deferred income. Capital contributions in respect of infrastructure assets are netted against tangible fixed assets in the consolidated balance sheet (note 12).
The Company had no capital contributions at either year-end.
15 Fixed Asset Investments Group Company
Share of Shares in Joint Ventures’ Subsidiary Net Assets Undertakings £’000 £’000
At 1 April 2013 33 100,738Group share of dividend paid by Joint Venture (33) —
At 31 March 2014 — 100,738
Shares in subsidiary undertakings are stated at their cost which is equal to net book value.
Notes to the Financial Statements
75
As at 31 March 2014, the Company’s principal subsidiary undertakings, all of which are incorporated in the United Kingdom with the exception of Echo India Private Limited, which is incorporated in India, and all of which have only ordinary shares in issue, were as follows:
Company Name Direct Indirect Nature of Principal Business
South Staffordshire Water PLC 100% Regulated water supply
Aqua Direct Limited 100% Supply of spring and mineral water
Office Watercoolers Limited 90% Rental of water cooling units and sale of spring water
Echo Managed Services Limited 100% Customer management
Echo Northern Ireland Limited 100% Customer management
Inter-Credit International Limited 100% Customer credit management
Echo India Private Limited 100% Software development support services to UK parent company
SSI Services (UK) Limited 100% Holding company for those companies listed below
Onsite Central Limited 100% Sewer inspection, relining, drainage, surveying and flow monitoring
Perco Engineering Services Limited 100% Trenchless installation and refurbishment of pipeline networks
Onsite Specialist Maintenance Limited 100% Specialist infrastructure maintenance
Integrated Water Services Limited 100% Clean water asset installation, repair, maintenance and refurbishment, mechanical and electrical and water hygiene services
Hydrosave UK Limited 100% Water main leak detection services and clean water network management services
Hydrosave Pipeline Technologies Limited 100% Non-destructive testing of clean water pipelines
On 1 April 2013 the business, trade, assets and liabilities of Cambridge Water PLC, a subsidiary undertaking, were transferred to South Staffordshire Water PLC, also a subsidiary undertaking by way of a Transfer Scheme in accordance with Schedule 2 of the Water Industry Act 1991. As such, Cambridge Water PLC no longer trades and the licence to supply water in the Cambridge region is now held by South Staffordshire Water PLC.
76
16 Stocks
Group 2014 2013 £’000 £’000
Stores and raw materials 2,386 2,272
The Company had no stocks at either year-end.
17 Debtors Group Company
2014 2013 2014 2013 £’000 £’000 £’000 £’000
Amounts recoverable within one year Trade debtors 35,551 34,804 — — Other debtors 2,514 3,830 639 1,825 Amounts owed by Group undertakings — — 7,184 5,755 Amounts owed by parent undertakings 364 364 — — Prepayments and accrued income 15,295 12,690 2,391 1,808
53,724 51,688 10,214 9,388 Amounts recoverable in more than one year Loans receivable from parent undertakings 96,671 97,908 56,671 57,908 Amounts owed by Group undertakings — — 23,188 4,650 Derivative financial assets 136 — 136 — Other amounts owed by parent undertakings 4,026 4,145 — —
100,833 102,053 79,995 62,558
154,557 153,741 90,209 71,946
Derivative financial assets represent the market value of floating to fixed rate interest swaps designated as cash flow hedges.
Other debtors in the Company include a deferred tax asset of £352,000 (2013: £827,000). The movement in the deferred tax asset of the Company is analysed below:
£’000
At 1 April 2013 827Credit to profit and loss account 23Charge to statement of total recognised gains and losses (498)
At 31 March 2014 352
Deferred tax assets for the Group as a whole are set-off against deferred tax liabilities (note 22).
Notes to the Financial Statements
77
18 Borrowings Group Company
2014 2013 2014 2013 £’000 £’000 £’000 £’000
Amounts falling due within one year Short-term bank loans 9,109 16,394 14,207 15,999 Bank term loans — 44,955 — 44,955 Obligations under finance leases and
hire purchase contracts 935 1,053 — —
10,044 62,402 14,207 60,954
Amounts falling due in more than one year Bank term loans 105,185 45,715 78,779 19,359 Index-linked debt 200,103 194,412 — — Private placement loan notes 40,559 56,230 40,559 56,230 Irredeemable debenture stock 1,679 1,825 — — Obligations under finance leases and hire-purchase contracts:
Payable between one and two years 257 626 — — Payable between two and five years 76 346 — —
347,859 299,154 119,338 75,589
Total borrowings 357,903 361,556 133,545 136,543
The book value of the Group’s index-linked debt of £200,103,000 (2013: £194,412,000) is stated above at amortised cost in accordance with FRS26. The indexed principal of £186,517,000 (2013: £180,986,000) is used for borrowing covenant reporting purposes. Similarly, Group gross bank term loans of £106,263,000 (2013: £91,500,000) and gross private placement loan notes of £41,000,000 (2013: £56,763,000) are used for covenant reporting purposes but, in accordance with FRS26, are stated above net of unamortised issue costs.
78
19 Other Creditors Group Company 2014 2013 2014 2013 £’000 £’000 £’000 £’000
Amounts falling due within one year Trade creditors 30,517 32,127 3,263 4,084 Payments received in advance 17,254 13,787 — — Other creditors 12,597 14,890 4,109 3,329 Corporation tax payable 4,107 3,554 994 668 Other taxation and social security 1,585 1,370 154 124 Derivitive financial liabilities — 2,063 — 2,063
66,060 67,791 8,520 10,268
Amounts falling due in more than one year Derivative financial liabilities 702 1,273 86 59 Other creditors 11,946 15,112 452 1,313
12,648 16,385 538 1,372
Derivative financial liabilities represent the market value of floating to fixed rate interest rate swaps and also, for 2013 only, cross currency swaps designated as cash flow hedges.
20 Provisions for Liabilities
Group Deferred Tax
£’000
At 1 April 2013 13,610Profit and loss account credit (excluding pension cost timing differences) (3,684)Amounts acquired with subsidiary undertakings 9Charge to statement of recognised gains and losses 893Other adjustments 2
At 31 March 2014 10,830
An analysis of deferred tax is set out in note 22.
The Company had no provisions for liabilities at either year-end.
Notes to the Financial Statements
79
21 Retirement Benefit Surplus
Surplus of defined benefit scheme (net of deferred tax) £'000
Surplus at 1 April 2013 12,491 Current service cost (employer) (1,794) Current service cost (employee) (717) Contributions (employer) 4,142 Contributions (employee) 717 Net finance income (restricted) 1,794 Actuarial loss (net) (5,731) Gain due to movement on asset limit (excluding restricted finance income) 576 Movement on deferred tax 689
Surplus at 31 March 2014 12,167
Further disclosures relating to the above surplus are provided in note 29.
22 Deferred Tax Group Company
2014 2013 2014 2013 £’000 £’000 £’000 £’000
Deferred tax liabilities/(assets) are provided as follows: Accelerated capital allowances 20,539 23,974 (1) 2 Timing differences in respect of finance charges 873 1,631 — — Timing differences in respect of hedging reserves (1,409) (2,302) 10 (488) Other timing differences (350) (466) (361) (341)
Undiscounted provision for deferred tax 19,653 22,837 (352) (827) Discount (8,823) (9,227) — —
Discounted provision for deferred tax 10,830 13,610 (352) (827)
Reductions to the future corporation tax rate of 20% were enacted during the year ended 31 March 2014 and as such deferred tax has been provided at this rate.
The decrease in the discount of £404,000 (2013: increase of £1,663,000) represents the charge (2013: credit) to profit and loss for the year. It includes the impact of the change in future tax rates to 20% as explained above. There is an unprovided deferred tax liability of £3,378,000 (2013: £3,871,000) on capital gains rolled over into other assets of the Group. This will crystallise if the Group sells the assets into which the gain has been rolled into. Deferred tax relating to the retirement benefit surplus (2013: surplus) is excluded from the above and included in the net surplus (2013: surplus) stated in the consolidated balance sheet.
The deferred tax asset of the Company at 31 March 2014 of £352,000 (2013: £827,000) is presented within other debtors (note 17).
80
23 Share Capital
Group and Company 2014 2013 £’000 £’000
Authorised47,058,824 ordinary shares of 42.5p each 20,000 20,000
Issued and fully paid12,819,856 ordinary shares of 42.5p each 5,449 5,449
24 Reserves
Group Share Capital Currency Premium Redemption Merger Translation Hedging Profit and Account Reserve Reserve Reserve Reserve Loss Account £’000 £’000 £’000 £’000 £’000 £’000
At 1 April 2013 10,882 1 (253) (3) (7,010) 31,036Profit for the financial year — — — — — 33,721Dividends paid or proposed (note 9) — — — — — (15,168)Other recognised losses (net of deferred tax) — — — — — (3,637)Exchange movements on translation of overseas operations — — — (4) — —Change in value of hedging instruments - cash flow hedges (net of deferred tax) — — — — 2,116 —Amounts recycled to profit and loss (net of deferred tax) — — — — (48) —
At 31 March 2014 10,882 1 (253) (7) (4,942) 45,952
Included within the Group profit and loss account balance is the surplus (net of deferred tax) of the defined benefit pension scheme of £12,167,000 (2013: £12,491,000 - surplus).
Company Share Capital Premium Redemption Hedging Profit and Account Reserve Reserve Loss Account £’000 £’000 £’000 £’000
At 1 April 2013 10,882 1 (1,634) 10,152Profit for the financial year — — — 41,665Dividends paid or proposed (note 9) — — — (15,168)Change in value of hedging instruments - cash flow hedges (net of deferred tax) — — 1,674 —
At 31 March 2014 10,882 1 40 36,649
As provided by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The Company’s profit after tax for the financial year was £41,665,000 (2013: £24,516,000).
Notes to the Financial Statements
81
25 Operating Lease Commitments
At 31 March 2014 the Group and the Company had the following annual commitments under non-cancellable operating leases:
Group 2014 2013 2014 2013 Buildings Buildings Other Other £’000 £’000 £’000 £’000Operating leases which expire: within one year 330 53 352 375 between two and five years 511 505 1,969 1,944
841 558 2,321 2,319
Company 2014 2013 Motor Motor Vehicles Vehicles £’000 £’000Operating leases which expire: within one year — 2 between two and five years 102 116
102 118
26 Minority Interests
£'000
At 1 April 2013 42Profit on ordinary activities after taxation 18
At 31 March 2014 60
82
27 Acquisitions
On 10 October 2013, Integrated Water Services Limited acquired the entire issued ordinary share capital of Woodside Environmental Services Limited, a specialist mechanical and electrical engineering company based in the North West of England.
The acquisition method of accounting has been adopted.
A summary of the acquisition, including the consideration, the assets and liabilites acquired (both based on the provisional fair values), the related goodwill and the impact of the transaction on group cash flow and net debt are set out below:
Total £’000
Consideration: Cash consideration 1,293 Deferred consideration 143 Acquistion costs 33
1,469
Book value of net assets acquired: Tangible fixed assets 49 Debtors 521 Cash at bank and in hand (net) 399 Creditors and provisions (net) (494)
Net assets (book value and fair value) 475
Goodwill on acquisition 994
Cash consideration paid in the year (including acquisition costs) 1,326Cash acquired (net) (399)
Net cash outflow 927
Acquired finance leases 6
Increase in net debt in the year 933
There was no material difference between the book value of the net assets acquired and their provisional fair value.
The cash consideration reported above differs to that reported in the Consolidated Cash Flow Statement for the year ended 31 March 2014, due to additional cash payments including deferred and contingent consideration, made in the year by the Group in respect of prior year acquisitions.
Goodwill is being amortised over an estimated useful economic life of 10 years.
Notes to the Financial Statements
83
28 Financial Assets and Liabilities
The Group’s financial assets and liabilities include cash, loans receivable, borrowings, derivative financial assets and liabilities, trade creditors and trade debtors. Borrowings as at 31 March 2014 represent bank term loans and short-term bank loans, private placement loan notes, finance lease obligations, index-linked debt and irredeemable debenture stock. The purpose of the Group's borrowings is to finance the Group’s operations. It is, and has been throughout the year and the previous year under review, the Group’s policy that no trading in financial instruments shall be undertaken. The Group’s policy in respect of cash, loans receivable and borrowings is to maintain flexibility with both fixed and floating interest rates and long and short-term debt while not exposing the Group to significant risk of market movements (see below). As at 31 March 2014, derivative financial assets and liabilities represent floating to fixed interest rate swaps used as cash flow hedges to reduce the Group’s risk to changes in LIBOR.
Interest Rate Risk Profile
Borrowings 2014 2013 £’000 £’000
Retail Price Index-linked debt 200,103 194,412 Fixed rate financial liabilities 105,498 150,750 Floating rate financial liabilities 52,302 16,394
357,903 361,556
The floating rate borrowings comprise sterling denominated short-term bank loans (revolving credit facilities) that bear interest at rates based on LIBOR. These include £35,000,000 (2013: £Nil) of loans that are floating rate but floating to fixed interest rate swaps have been entered into as at 31 March 2014 in respect of these loans that commence cash flows in October 2015 when these loans will therefore become fixed rate when combined with these swaps. Fixed rate financial liabilities include fixed rate bank term loans of £15,763,000 (2013: £Nil) and floating rate bank term loans of £46,193,000 (2013: £90,670,000) that are effectively swapped to fixed rate by cash flow hedges using floating to fixed interest rate swaps where cash flows under the swaps have commenced. The Group's trade debtors and trade creditors are not subject to interest unless considered to be overdue.
For all financial assets and liabilities, the book values and fair values are not materially different, except for the £111,400,000 (2013: £111,400,000) Retail Price Index-linked loan which had a book value at 31 March 2014 of £158,235,000 (2013: £153,893,000), and a fair value of £224,750,000 (2013: £220,204,000) and the £35,000,000 (2013: £35,000,000) Retail Price Index-linked bond which had a book value at 31 March 2014 of £41,868,000 (2013: £40,519,000) and a fair value of £38,416,000 (2013: £34,695,000).
Fixed Rate Borrowings Weighted Weighted average average period for which interest rate rate is fixed
% Years
2014 Sterling 4.0 4.1
2013Sterling 4.7 3.8
Fixed rate borrowings at 31 March 2013 includes US Dollar denominated loan notes that were swapped to Sterling using cross currency swaps that were fully effective. These notes have now been repaid and the related swaps have been terminated.
84
Borrowing Facilities
The Group has various borrowing facilities available to it. The undrawn committed facilities available at 31 March 2014 were as follows:
2014 2013 £’000 £’000
Expiring in one year or less — 15,000 Expiring in more than one year but not more than two years 8,200 — Expiring in more than two years but not more than five years 29,237 17,848
37,437 32,848
Financial Risks
The Group’s activities result in it being subject to a limited number of financial risks, principally credit risk as the Group has financial assets receivable from third parties. Management of financial risks focuses on reducing the likely impact of risks to a level that is considered acceptable. The Group has formal principles for overall risk management as well as specific policies to manage individual risks.
1) Interest rate risk
Interest rate risk arises from borrowings issued at floating rates, including those linked to LIBOR and the Retail Price Index (RPI), that expose the Group’s cash flows to changes in LIBOR and RPI. Risks of increases in LIBOR are managed by limiting the value and proportion of Group borrowings that are linked to this variable rate and by entering into an appropriate value of floating to fixed interest rate swap contracts. Risks associated with increases in RPI are effectively hedged against the revenues and the Regulatory Asset Value of South Staffs Water, both of which are also linked to RPI.
2) Credit risk
As is market practice, the Group grants certain customers credit on amounts due for the services it supplies, leading to limited risk over the recovery of amounts receivable from these customers. Full details of the way this risk is managed are provided below. Credit risk also includes the risk over recovery of loans receivable. This risk is managed by ensuring that loans are only made to entities with sufficient financial resources to service the interest due on the loans. The total carrying value of financial assets subject to credit risk, net of provisions, at 31 March 2014 was £139,262,000 (2013: £141,051,000).
3) Liquidity risk
Liquidity risk represents the risk of the Group having insufficient liquid resources to meet its obligations as they fall due. The Group manages this risk by regularly monitoring the maturity of credit facilities, actual and forecast cash flows and ensuring that the payment of its obligations are matched with cash inflows and availability of free cash and adequate credit facilities. The table above details the undrawn committed borrowing facilities available to the Group to manage this risk.
Notes to the Financial Statements
85
Security Over Assets
Obligations under finance leases and hire purchase contracts are secured on the assets to which they relate. Index-linked debt and bank debt issued by South Staffordshire Water PLC, is not secured on any assets. The Company’s bank loans and its private placement loan notes are secured against the shares of the Company and its subsidiaries.
Sensitivity Analysis
The following analysis, required by Financial Reporting Standard 29, is intended to illustrate the sensitivity to reasonably possible movements during the year, in variables affecting financial liabilities, being LIBOR and the long-term forecast for the UK Retail Price Index (RPI) on the pre-tax profit and loss account of the Group for the year ended 31 March 2014. There is no impact on reserves other than the impact on the profit and loss account after tax.
2014 2013 £’000 £’000
RPI + 0.25% (461) (448)RPI - 0.25% 461 448LIBOR +1.00% (239) (403)LIBOR -1.00% 239 403
The impact on the pre-tax profit and loss account for the year to 31 March 2014 detailed above has been calculated by assuming that the illustrated changes to the variables occurred on 1 April 2013 and remained different to the actual variables recorded by the stated amount during the year with all other variables remaining at the actual amounts. The comparative figures have been calculated using the same methodology assuming the stated change to the variables occurred on 1 April 2012.
86
Maturity of Financial Assets and Liabilities
The maturity profile of the Group’s financial liabilities recorded at repayment value, not book value, at 31 March 2014 was as follows:
2014 2013 £’000 £’000
BorrowingsIn one year or less, or on demand 10,044 62,447In more than one year, but not more than two 26,757 626In more than two years, but not more than five 92,458 46,846In more than five years, but not more than twenty 28,381 56,763In more than twenty years 188,196 182,809
345,836 349,491Other financial liabilitiesIn one year or less, or on demand 66,060 67,791In more than one year but not more than two 1,658 3,653In more than two years but not more than five 1,596 3,140In more than five years but not more than twenty 9,394 9,592
Total 424,544 433,667
The table above excludes future interest payments and future indexation on financial liabilities. Index-linked borrowings of £186,517,000 (2013: £180,985,000) included in the table above are stated at the principal amount indexed by the appropriate RPI value to the balance sheet date. The estimated redemption value of index-linked borrowings at redemption in 2045 is £399,467,000 (2013: £399,467,000) and at redemption in 2051 is £139,996,000 (2013: £139,996,000).
Group debtors recoverable in more than one year of £100,833,000 (2013: £102,053,000) principally represent loans receivable from the Company's parent undertakings of £96,671,000 (2013: £97,908,000) with £Nil (2013: £Nil) due to be repaid within a year, £15,000,000 (2013: £15,000,000) due to be repaid between five and twenty years and £81,671,000 (2013: £82,908,000) having no fixed repayment date.
Trade Debtors
Before accepting orders from customers and offering credit terms, the Group undertakes appropriate credit assessments and uses this information to determine if the order is accepted and the credit terms that will be offered. Provision is made within the trade debtor values detailed below, based on judgement by senior management, for amounts considered to be unrecoverable due either to their nature or age. Due to the varying nature of the Group’s businesses there is no single method that is applied to all trade debtors. This would not be considered appropriate with the methods applied being considered appropriate to each business. The total amount charged to the profit and loss account in the year ended 31 March 2014 in respect of such provisions was £3,703,000 (2013: £3,753,000). Total Group trade debtors (net of provisions) as at 31 March 2014 were £35,551,000 (2013: £34,804,000). The total amount of the provision included in the above, as at 31 March 2014 was £24,805,000 (2013: £21,306,000). The Group does not hold collateral over its trade debtors.
Notes to the Financial Statements
87
The Directors consider that debtors that are neither past due nor impaired are of a high quality and were considered, at the balance sheet date, to be fully recoverable at their gross book value. The Directors consider that the concentration of credit risk across the Group is limited due to the Group’s customer base being significant. The largest balance outstanding from any single third party at 31 March 2014 was £883,000 (2013: £1,051,000), representing 2% of the above Group net trade debtor total (2013: 3%). Individually significant debtors are principally due from customers with investment grade credit ratings including utilities, government agencies and local authorities.
An ageing analysis of invoiced trade debtors that are past due but not impaired is provided below:
South Staffs Water <1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years Total £’000 £’000 £’000 £’000 £’000 £’000 £’000
2014 8,159 1,991 1,210 788 445 154 12,7472013 7,247 1,897 1,277 767 317 42 11,547
Non-regulated service businesses <1 month 1-2 months >2 months Total £’000 £’000 £’000 £’000
2014 2,674 1,061 2,274 6,0092013 2,576 1,031 2,905 6,512
Non-regulated service business’ debtors that are considered to be impaired of £1,328,000 (2013: £1,257,000) were all more than 2 months past due. An ageing analysis of debtors of South Staffs Water that are considered to be impaired is provided below:
<1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years Total £’000 £’000 £’000 £’000 £’000 £’000 £’000
2014 3,662 3,230 2,935 2,766 2,623 8,261 23,4772013 2,943 3,052 2,714 2,552 2,404 6,384 20,049
The Directors consider that the carrying value of trade and other debtors including loans receivable, net of provisions, detailed in note 17 approximates to their fair value.
29 Pension Retirement Benefits
The Group operates a number of funded pension schemes for the benefit of its employees. The Group participates in the Water Companies Pension Scheme, by way of two separate sub-funds, which provide benefits based on final pensionable pay. The Group also operates a number of defined contribution pension schemes. The assets of these schemes are held separately from those of the Group, being invested by professional fund managers.
The Group accounts for pension schemes in accordance with Financial Reporting Standard 17, "Retirement Benefits" (FRS 17). Further details are provided in note 1. In accordance with the recommendations of the actuary, the employers’ current service cost charged to the Group's profit and loss account for the defined benefit scheme in the year ended 31 March 2014 was £1,794,000 (2013: £1,698,000). For the defined benefit scheme sub-fund which is not closed to future accrual, the employer’s contribution rate in the year ended 31 March 2014 was 26.2% (2013: 26.2%) plus a fixed contribution of £1,672,000 (2013: £1,629,000) with the employee contribution rates being 9.5% (2013: 9.5%). Contribution rates for the year ending 31 March 2015 remain at 9.5% for the employee with the employer rate remaining at 26.2% plus a fixed contribution of £1,724,000. The amount charged to the profit and loss account for the defined contribution schemes in the year was £1,199,000 (2013: £959,000). There were no overdue contributions at either year-end.
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Financial Reporting Standard 17
Additional disclosures regarding the Group’s defined benefit pension scheme are required under the provisions of FRS 17. The FRS 17 valuations at 31 March 2014 have been undertaken by a qualified actuary using assumptions that are consistent with the requirements of FRS 17. The market value of investments has been calculated using the bid price.
The major assumptions used were as follows:
31 March 31 March 31 March 2014 2013 2012 % % %
Rate of increase in salaries 3.6 3.6 4.0 Rate of increase in pensions 2.6 2.6 2.5 Discount rate 4.4 4.4 4.7 Annual inflation RPI 3.6 3.6 3.5 Annual inflation CPI 2.6 2.6 2.5
31 March 31 March 31 March 2014 2013 2012 No. of Years No. of Years No. of Years
Life expectancy of male aged 60 at accounting date 27.5 27.4 26.9
The market value of the assets in the schemes and the present value of the liabilities in the scheme at the balance sheet date were:
Valuation 2014 2014 2013 2013 2012 2012 % £’000 % £’000 % £’000
Equities 34 77,831 32 74,692 38 81,439High yield bonds/gilts and debt instruments 48 113,506 49 114,809 52 109,794Diversified growth funds 12 27,757 12 27,202 10 20,656Emerging markets multi asset funds 6 14,331 7 16,233 — —Cash/(overdraft) — 206 — (68) — 123
Market value of schemes’ assets 233,631 232,868 212,012Present value of schemes’ liabilities (211,257) (209,653) (195,201)
Surplus in the schemes 22,374 23,215 16,811Amount not recognised due to asset limit (7,165) (6,993) (4,657)
Surplus before deferred tax 15,209 16,222 12,154Related deferred tax liability (3,042) (3,731) (2,917)
Surplus after deferred tax 12,167 12,491 9,237
Notes to the Financial Statements
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Changes in the present value of the schemes’ liabilities are as follows:
2014 2013 £’000 £’000
Opening present value of schemes’ liabilities 209,653 195,201Current service cost (employer) 1,794 1,698Current service cost (employee) 717 750Interest cost 9,069 9,028Actuarial (gain)/loss (316) 11,719Benefits paid (9,660) (8,743)
Closing present value of schemes’ liabilities 211,257 209,653
Changes in the market value of the schemes’ assets are as follows:
2014 2013 £’000 £’000
Opening market value of schemes’ assets 232,868 212,012Expected return on schemes’ assets (not restricted) 11,611 10,492Actuarial (loss)/gain (6,047) 14,173Contributions (employer) 4,142 4,184Contributions (employee) 717 750Benefits paid (9,660) (8,743)
Closing market value of the schemes’ assets 233,631 232,868
The actual return on the schemes’ assets over the year to 31 March 2014 was a gain of £5,564,000 (2013: £24,665,000).
An analysis of the movement in the scheme surplus during the year ended 31 March 2014 is provided in note 21. The following disclosures represent the analysis of the scheme surplus/(deficit) and the amounts that have been recorded in the consolidated statement of total recognised gains and losses over a five year history.
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2014 2013 2012 2011 2010 £’000 £’000 £’000 £’000 £’000
Market value of schemes’ assets 233,631 232,868 212,012 164,991 154,890Present value of schemes’ liabilities (211,257) (209,653) (195,201) (146,365) (160,450)
Surplus/(deficit) in the schemes 22,374 23,215 16,811 18,626 (5,560)
Experience adjustments on schemes’ liabilities - amount of gain/(loss) 316 947 (467) 2,078 3,472% of scheme liabilities — — — 1% 2%Experience adjustments on schemes’ assets - amount of (loss)/gain (6,047) 14,173 4,002 3,071 26,069% of scheme assets (3%) 6% 2% 2% 17%(Loss)/gain due to changes in assumptions underlying the — (12,666) (13,755) 17,098 (38,155) present value of schemes’ liabilities% of scheme liabilities — 6% 7% 12% (24%)
Actuarial (loss)/gain (5,731) 2,454 (10,220) 22,247 (8,614)% of schemes’ liabilities (3%) 1% 5% 15% (5%)
30 Related Party Transactions
During the year ended 31 March 2009, South Staffordshire Water PLC entered into a series of agreements with a parent undertaking, Hydriades I LP. The agreements were put in place to offset the impact on South Staffordshire Water PLC of certain hedging relationships entered into with a third party bank, on both cash flow and the profit and loss account. During the year ended 31 March 2014 the balance in Hydriades I LP was transferred to Selena Bidco Limited, which is a parent undertaking of the Company. The balance due from Selena Bidco Limited in respect of these transactions at 31 March 2014 was £4,389,000 (2013: £4,509,000). This amount has been recognised within debtors in the Group Consolidated Balance Sheet. In accordance with applicable accounting standards, the impact of both arrangements on the profit and loss account of South Staffordshire Water PLC and the Group have been netted off with no overall impact.
31 Ultimate Controlling Party
The Company's immediate parent undertaking is Aquainvest Acquisitions Limited. The ultimate controlling party in the United Kingdom is Hydriades IV Limited which is the largest and smallest set of accounts to which the Group is consolidated within. The results of the Company and the Group for the year ended 31 March 2014 are consolidated in the accounts of Hydriades IV Limited. The ultimate controlling party is KKR Infrastructure Limited.
Notes to the Financial Statements
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Group Five Year SummaryGroup 2014 2013 2012 2011 2010 £’000 £’000 £’000 £’000 £’000
Turnover South Staffs Water 122,504 117,314 102,100 87,843 86,088 Non-regulated service businesses 129,534 113,609 112,277 92,740 72,405 Inter-divisional (27,337) (25,896) (25,581) (21,131) (16,012)
224,701 205,027 188,796 159,452 142,481
Operating profit South Staffs Water 35,858 33,313 25,623 21,658 23,097 Non-regulated service businesses 11,647 9,477 9,682 6,424 5,200
47,505 42,790 35,305 28,082 28,297 Exceptional profit on sale of tangible fixed assets — — — 1,465 —Finance charges (net) (12,420) (13,127) (12,209) (8,744) (9,692)
Profit before tax 35,085 29,663 23,096 20,803 18,605
EBITDA 80,179 74,083 63,223 51,986 50,484Profit for the financial year 33,721 28,683 22,216 20,506 18,581Net cash inflow from operating activities 75,035 65,957 61,023 56,424 44,152Average number of employees 2,370 2,193 2,083 1,857 1,673Capital investment (before contributions) 42,089 46,833 40,730 34,918 25,036Net assets 57,142 40,144 28,488 32,429 24,516Net debt (book value) 349,756 353,867 338,914 281,733 264,802Net debt (covenant value) 337,689 341,800 326,158 266,467 247,375
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South Staffs Water
South Staffordshire PlcGroup Chief Executive: Adrian Page
Green Lane, Walsall, West Midlands, WS2 7PDTelephone: 01922 638282
www.south-staffordshire.com
South Staffordshire Water PLCManaging Director: Phil Newland
South Staffs WaterGreen Lane, Walsall, West Midlands, WS2 7PDTelephone: 01922 638282
www.south-staffs-water.co.uk
Cambridge Water90, Fulbourn Road, Cambridge, CB1 9JNTelephone: 01223 706050
www.cambridge-water.co.uk
Contact Details
93
SSI Services (UK) LtdManaging Director: Andrew Garcia
Green Lane, Walsall, West Midlands, WS2 7PDTelephone: 01922 638282
www.ssi-services.co.uk
Integrated Water Services LtdMechanical & Electrical and Pipeline ServicesManaging Director: Pete Aspley
Water Hygiene Managing Director: Chris Brown
Green Lane, Walsall, West Midlands, WS2 7PDTelephone: 01922 638282
www.integrated-water.co.uk
SSI Services
W a t e r N e t w o r k E f f i c i e n c y
Hydrosave UK LtdManaging Director: Simon Dray
Swallow Court, Kettering Venture Park, Kettering, NN15 6XXTelephone: 01536 515110
www.hydrosave.co.uk
94
S p e c i a l i s t M a i n t e n a n c e
OnSite Specialist Maintenance Ltd Perco Engineering Services LtdManaging Director: Dave Taylor
The Old Nurseries, Nottingham Road,Radcliffe-on-Trent, Nottingham, NG12 2DUTelephone: 0115 933 5010
www.onsite-sm.co.ukwww.perco.co.uk
OnSite Central LtdUtility Services Managing Director: Alan Plante
89 Blackpole West, Blackpole, Worcester, WR3 8TJTelephone: 01905 340054
Pipe LiningManaging Director: Simon Baylis
Unit 14, W & G Estate, Farringdon Road, East Challow, Wantage, OX12 9TFTelephone: 01235 772882
www.onsite.co.uk
95
Echo Managed Services LtdManaging Director: Nigel Baker
Green Lane, Walsall, West Midlands, WS2 7PDTelephone: 0845 12 12 122
www.echo-ms.com
Inter-Credit International LtdManaging Directors: Brendan Glover & Simon Davison
2nd Floor, South Point House, 321 Chase Road, Southgate, London, N14 6JTTelephone: 0208 482 4444
www.intercred.com
Echo
96
Office Watercoolers LtdManaging Director: Ken Skelton
Waterloo House, 112-116 Anglesey CourtTowers Business Park, Rugeley, Staffordshire, WS15 1ULTelephone: 0845 60 90 902
www.office-coolers.com
Aqua Direct LtdGeneral Manager: Helene James
Elmhurst Spring, Lichfield Road,Elmhurst, Lichfield,Staffordshire, WS13 8HQTelephone: 01543 493 613
www.aqua-direct.co.uk
Office Watercoolers
Aqua Direct
South Staffordshire PlcGreen LaneWalsallWS2 7PD
Tel: +44 (0)1922 638282
www.south-staffordshire.com
