The
next
chapter.
Interim report 2016/17
Our highlights April - September 2016
50%
reduction in
second stage
complaints
90,000
smart meters
installed since
January
Strong
credit ratings
reaffirmed
Baa1
(stable)
of energy
generated from
sewage
2
alliance
launched
£541
million
2 million
man hours
without a lost
time injury
127 GWh
third
investment
£1
billion
revenue
3
About Thames Water
See what’s
inside.
Our highlights – 1 April to 30 September
Our Chairman’s overview – strengthening our focus
Our CEO’s review of the first six months
Our financial statements
We are the UK’s largest water and wastewater services provider serving 15 million
customers across London, the Thames Valley and surrounding areas. For an average
of just over £1 a day per household, we provide 2.6 billion litres of clean drinking water
and safely remove 4.4 billion litres of wastewater –everyday, 365 days a year. We are
regulated by Ofwat, the Environment Agency and the Drinking Water Inspectorate
and our customers will benefit from our approximately £4 billion investment
programme between 2015 and 2020, the largest in the UK water industry. Our
ultimate parent company, Kemble Water Holdings Limited, is owned by a consortium
of pension funds and other long-term investors from the UK and around the world.
02
06
10
19
Banbury
Stevenage
Oxford
Swindon
Slough
Newbury
We provide water and
wastewater services in this area
LONDON
Dartford
Reading
Basingstoke
Reigate
Godalming
We provide wastewater but not
water services in this area
Inside our fully
operational
Victorian sewers,
designed by
Sir Joseph
Bazalgette
4
5
Interim report 2016/17
Our Chairman’s report
Recognition for success.
Strengthening
our focus.
We are consulting with Ofwat about our plans for the next
regulatory period which will run from 2020 to 2025. We’re busy
preparing for the next price review and we’re engaging with our
customers to find out what they will expect from us.
Keeping our focus.
Sir Peter
Mason KBE
Chairman
We’ve made some important changes at Thames Water
during the last six months to strengthen our focus and we’re
in a strong position to start the next chapter of our story.
Our new Chief Executive Officer, Steve Robertson joined us
in September and is already making a positive impact on our
business. Joining us from Truphone, Steve has a wealth of
experience in essential infrastructure and high technology
businesses. As founding Chief Executive Officer of BT Openreach
he led the company’s inception amidst radical changes in the
UK telecommunications market. Providing exceptional customer
service is something Steve is passionate about.
We’ve also just appointed Brandon Rennet as our new Chief
Financial Officer, to replace Stuart Siddall when he retires at the
end of December. Brandon has worked in the power industry for 14
years and joins us from SSE.
We’re currently recruiting a new Independent Non-Executive
Director to replace Michael Pavia when he steps down after ten
years on the Board. On behalf of the Board I would like to thank
Michael for his tremendous contribution over the last decade in his
capacity as Chairman of the Audit, Risk & Regulatory Committee
and as the Senior Independent Non-Executive Director.
During this period of change, we continue to focus on our primary
role of providing reliable water and wastewater services, and
delivering the commitments we’ve made to our customers.
We continue to make progress in customer service and at the end
of quarter two of this financial year we’ve moved up the customer
service league table.
Most customers give us a four or a five out of five for our service,
but the whole industry is improving and we need to keep working
hard to catch up with our peers. Accelerating our improvement in
customer service is going to be one of the key focuses for Steve as
we move through the rest of this regulatory period.
We’ve won a string of prestigious awards during the first
six months, which recognise some of the great work we’ve
being doing across the business. The team behind the credit
transformation project won water team of the year at the Utilities
& Telecoms Awards 2016, which recognises the work we’re doing
to reduce non-payment of bills and make things fairer for our
paying customers. We’ve moved from 12th to 4th place in the
British Water annual water company performance survey league
table and this is a reflection of all the hard work that has been
done to improve our supply chain. We’ve also been recognised
for all the work we’ve put in to the Thames Tideway Tunnel
project and its highly successful procurement, with awards such
as European Infrastructure Deal of the Year at the PFI Awards
2015 and Best Waste/Energy/Water Project Procurer of the Year
at the Partnership Awards. Our water saving initiatives have won
accolades at the Water Industry Achievement, Institution of Civil
Engineers and Customer Experience Awards events.
Sir Peter Mason
Chairman
in April 2017. With less than six months to go, we’re working hard
with Castle Water to ensure a seamless transition for our customers.
In our financial statements, you will notice this is the first time
we’re reporting underlying profit, which excludes the revenue
to finance the construction of the Thames Tideway Tunnel.
The cash collected is passed on to Bazalgette Tunnel Limited,
the independent company appointed in 2015 to construct the
landmark infrastructure project.
Embracing external change.
The UK is also seeing a lot of change – with Brexit and a new
Cabinet – and we’ve been doing lots of work to assess how Brexit
might affect our business. The European Investment Bank (EIB) is
one of our major lenders, but if Brexit has an impact on EIB’s policy
towards lending to UK companies, we will still have an ability to
access the wider debt market. We don’t anticipate a major impact
on the way we do things in the short term, as our customers and
most of our other suppliers are based in the UK, but it’s an everevolving landscape and we can’t be complacent.
Keeping
things clear
for our
customers.
Given these important changes and to ensure continuity, it was
agreed with the Board in June 2016 that I would extend my
current contract for a further 12 months until March 2018.
In July 2016, we announced the sale of our retail non-household
business to Castle Water, for £99 million. Castle Water will begin to
take on our non-household retail activities in autumn 2016 and will
acquire our full business retail operation when the market opens
6
7
We constantly
remind ourselves
about our
responsibility and
presence in the
community.
8
9
Interim report 2016/17
Chief Executive Officer’s review
Our
new CEO.
experience for customers and has helped improve customer
satisfaction scores. We’ve started to roll out the same model for our
water enquiries.
Steve Robertson
Chief Executive
Officer
We’ve continued to invest in a major update of our customer
relationship management and billing system to streamline how
we handle our almost 60 million interactions with customers each
year. Some customers want to do everything online and 450,000
household customers have now signed up to our online account
management system. This new system gives customers more
control, allowing them to manage their account and bills more
efficiently online - it also gives us the opportunity to share more
up-to-date information with our customers.
A reduction in complaints
“Putting customers at the heart of everything we do is vital”.
Three months in – my first thoughts
15 million people rely on our essential services 24 hours a day, 7
days a week, 365 days a year. We’re the custodians of incredible
infrastructure and, with a 400 year heritage, we’re one of the UK’s
oldest companies. As we face this enormous responsibility, we have
an obligation to our customers, and the environment, to get things
right. There are unique opportunities and challenges associated
with running such an iconic business.
It is also a huge privilege to have an ongoing relationship with our
customers. Our customers pay us every year to use our day-to-day
services, but they also help us to invest in our infrastructure to
ensure we’re able to continue providing safe drinking water and
safely removing wastewater now and for future generations. Our
customers rely on us and we rely on our customers.
At Thames Water we constantly remind ourselves about our
responsibility and presence in the community. We all need to
ensure 100% commitment to our roles so that we can deliver an
exceptional service first time, every time for our customers - this
is something I’m passionate about. From running efficient and
friendly call centres to completing repairs on pipes in the least
disruptive way we can, to managing our finances efficiently to
keep bills low and protecting our precious water resources for our
customers’ children and grandchildren – everything we do impacts
the customer.
We also have a duty to the environment, including avoiding
pollution, reducing our carbon footprint, minimising odour from
our sewage treatment works and disruption from our streetworks,
investing in local community projects and protecting biodiversity.
10
I am really proud to be leading the Company through the next
chapter of Thames Water’s story.
Looking after our customers.
Our restructured customer service centre has helped us see a 5%
reduction, year-on-year, in total complaints and a creditable 50%
reduction in the number of complaints not being dealt with the first
time round. We are now resolving 95% of complaints the first time,
which is in-line with the rest of the industry.
According to an industry
report published by the
Consumer Council for
Water in September
2016, we’ve reduced our
written complaints by
75% in the last ten years.
According to an industry report published by the Consumer Council
for Water in September 2016, we’re now third in the league table
for minimising our number of written complaints and we’re only
receiving around 25% of the written complaints we received ten
years ago. This represents good progress and is something we need
to keep improving.
Improving customer experience
There has been an upward trend in our customer service
performance. After a disappointing performance in quarter one,
I’m pleased to see we’ve recovered and moved up three places
in the Ofwat customer satisfaction (CSAT) league table in quarter
two. It’s no secret that we’ve been lagging behind our peers in
recent years, but we’ve been investing in new, innovative methods
to improve our performance.
Putting customers at the heart of everything we do is vital. It’s
not just our customer-facing employees who have a responsibility
to them – everyone at Thames Water is being encouraged to
understand the impact of their role, wherever it is in the Company,
on our customers.
We have
almost
60 million
interactions
with our
customers
each year.
When it comes to customer service it’s not ‘one size fits all’ - we’re
empowering people to take ownership and make the best decision
for the individual customer. From phone and letter, to email and
social media, there are many ways for customers to engage with
us. Whatever channel it is, I want the customer’s experience
to be a consistently positive one. We also work closely with our
independent customer challenge group (CCG), which exists to
ensure we always have our customers’ best interests at heart.
Our new contact centre for waste enquiries, which was set up
in Slough to bring customer service and operations staff under
one roof, drives faster complaint resolution, provides a better
11
Interim report 2016/17
Chief Executive Officer’s review
Protecting the water supply
As we all know, water is essential to life. We take it for granted,
but without action there won’t be enough for everyone, as the
population continues to grow at a rapid rate in our region and
climate change impacts our weather patterns.
Between January
and September
2016, we installed
90,000 smart
meters, which
use state-ofthe-art wireless
technology.
Customer focused field work.
Our customers rely on an uninterrupted supply of clean drinking
water and we’ve been working hard to minimise interruptions.
By being more effective at predicting and preventing bursts, as
well as dealing with bursts more quickly when they happen, we’ve
seen another reduction in the number of supply interruptions
of more than four hours. Once again, we’re on track to beat
our performance commitment. We do have more work to do to
minimise our 12 hour interruptions, which are often a result of a
burst that’s difficult to locate and complicated to repair.
We know that sewer flooding is a miserable experience for our
customers. To reduce the number of sewer blockages, a leading
cause of sewer flooding, we’ve continued to do more proactive
sewer cleaning. As a result, we’ve seen an 11% reduction, yearon-year, in the number of blockages. The internal sewer flooding
reporting issue we discovered last year has now been rectified
and affected customers have been compensated. We’ve seen
promising results so far this year, with our own waste CSAT survey
scores improving and fewer calls from customers.
Doing the right thing for our customers.
We’re continuing to do what we can to make things fairer for our
paying customers, including reducing bad debt and the number
of illegal connections. Connecting to our water network without
permission is illegal, poses a risk to water quality and is unfair
to those customers who do pay their bills. We’re continuing to
investigate illegal connections and we’ve accounted for a further
11.7 million litres of ‘stolen’ water during the last six months, the
equivalent of nearly five Olympic-sized swimming pools.
Contrary to popular belief, most people who don’t pay their
bills are those who choose not to, rather than those who can’t.
Approximately £13 is added to every customer’s bill to account
12
for it. To reduce the impact on bills, we’re now using our new debt
system to its full potential and people who choose not to pay their
bill will see their debt tied to their credit rating for the first time. This
is inevitably encouraging people to pay their debt, so we’ve been
collecting more cash from our bills.
We’ve tasked ourselves to reduce our leakage to its lowest ever
level, during this regulatory period. We’re working hard to meet
our ambitious target. We also installed 90,000 smart meters
between January and September 2016, to encourage customers
to think about the amount of water they use and give them more
control over their bill. The IT network to service our smart meters
went live in June and we now have over 56,000 meters sending
hourly data, to help us detect leaks and provide customers with
up-to-date information so they can be more water-wise. We’re also
progressing the roll-out of what is, we believe, to be the biggest
water efficiency programme in the history of the industry. Through
our Smarter Home Visits this year, to advise people on how to
reduce their water use, we’ve helped save over 2.6 million litres of
water each day (calculated using Ofwat’s water saving values).
Reducing the impact of our waste network on
the environment
Self-generating energy
Our work on the biggest upgrade to our network since the Victorian
era is making significant headway. The Lee Tunnel, our first supersewer at 7 kilometres long and 7 metres in diameter, is in operation
and our work to create the connections between our network and
the future Thames Tideway Tunnel is progressing ahead of an
accelerated schedule. This is allowing Bazalgette Tunnel Limited,
the independent company appointed to construct the tunnel, to
start and finish their main tunnelling works sooner. In West London,
we are continuing to progress our planning application for the
Counters Creek project, which is needed to protect thousands of
homes from flooding after heavy rainfall.
We are now self-generating 14.9% of our own energy, and have
set ourselves an ambitious target of producing 33% by 2020.
Pollutions and sewage treatment work compliance
To help those customers who genuinely can’t pay we now have
around 31,000 customers on our social tariffs – Water Sure and
Water Sure Plus, which is an extra 5,000 customers since March
2016. We’ve also helped 3,881 people with £2.8 million of debt
through our customer assistance fund, during the first six months.
Reducing our environmental impact.
Sludge – a by-product of sewerage – is a never-ending energy
resource and we’ve invested in new, state-of-the-art technology,
and updated existing energy production equipment, to produce
more energy than ever before. We’re starting to see our investment
pay off with 127 GWh of energy produced from sludge during the
first six months of the year. By not having to import this energy
from the grid, we saved £15 million off our energy bill and this will
only increase as we maximise the benefits of this new technology.
We’ve also been using more solar energy than ever before. Just
over 7,200 MWh of solar power has been generated by panels on
our sites, including the innovative floating solar panel array on our
QE2 reservoir, during the last six months. This is the equivalent
energy to power our entire water treatment process for Reading
over the same period.
Engaging with our
customers at the
Battle of Ideas
event in October
2016, sponsored
by Thames Water.
It was always going to be a challenge to equal our exceptional
50% reduction in pollutions performance from 2015/16. We are
behind where we were last year, but we are still performing well
compared to our historic performance. We have an ambitious
target for sewage treatment work compliance of 100% and we are
currently 98.55% compliant.
Three alliances in place.
After six months of intense preparation, our eagerly awaited
Technology and Transformation Alliance (TTA) officially launched
on 1st October. Sitting alongside our existing alliances, the TTA
brings together partners, including IBM, Accenture, Deloitte and
Bilfinger, with ‘best in class’ capability from across the IT industry
into Thames Water. Aligning technology partners with operational
teams, this industry-leading model, which was designed to
encourage state-of-the-art innovation and efficiency in our IT, is set
to move us up the industry league table in cost and performance.
13
Interim report 2016/17
Chief Executive Officer’s review
We performed
11,000 safety
inspections on our
sites during the
first six months of
the year.
To understand the life
changing impact our
‘Thames loves Malawi’
fundraising campaign
will have on the people
in two villages in Malawi,
we sent a team from
Thames Water to visit
them in July.
As with our eight2O and Infrastructure Alliances, the interests of
Thames Water and our customers remain at the heart of the TTA.
Financial returns are tied to performance and customer outcomes,
which incentivise all the companies within the alliances to work
effectively together for shared success.
With all three alliances now in place, our focus is on ensuring they
work together, to drive maximum efficiency and benefit for the
entire Thames Water family.
We’re also taking an innovative new approach to security and have
introduced a ground-breaking new framework to focus on four key
areas – data protection, cyber, personnel and physical security.
Performance
incentives
People and communities.
Investing in success.
Safer working environment.
The commitment of our employees drives our success and as
a reward for their commitment we launched the ‘share in your
success’ scheme in 2015. This gives employees the opportunity
to invest in Thames Water via a savings scheme, with a return on
their share when the company does well. Year one completed with
positive feedback and the second year of the scheme launched in
October 2016.
The health and safety of our customers and employees across our
vast and diverse region – covering London, the Thames Valley and
surrounding areas - is of paramount importance and we continue
to strive for zero incidents.
For the first time ever, we’ve achieved two million man hours
without an injury leading to lost working time, and we’re hugely
proud of this.
Our three alliances
Prevention is better than cure. We’ve increased the number of
safety inspections on our sites, 11,000 in the first six months of the
year, to reduce potential hazards, while further empowering our
employees to challenge situations and report potential hazards.
We’ve trialled new technologies to reduce the impact of the risks
that our employees face in the field every day.
To increase the safety of our employees we’ve been trialling new
technology over the last six months. We’re now using a new
personal proximity protection device, which alerts employees
when they are too close to equipment, drones to carry out site
inspections of high level equipment, and new vacuum technology
14
to assist with excavations and reduce the likelihood of us hitting
other utilities’ cables and pipes which can be dangerous.
We offer every employee an annual personal medical assessment.
2,573 assessments have already been taken by employees during
the first six months of this financial year. We think every company
should offer this benefit to one of their biggest assets – their
people – and we’ve opened our programme up to people who work
for our contractors, who aren’t offered the service by their own
employer.
In October we held the award ceremony for our Spotlight
awards, which are internal awards to recognise the success of
our employees. This year we had more than double the number
of entries we had last year with over 900 nominations across the
company.
Essential for life.
Having access to clean drinking water 24 hours a day is something
we take for granted in the UK. However, not all people across
the world are so lucky. To provide a reliable water source for two
villages in Malawi, the world’s poorest country, we launched a
campaign earlier this year to raise £2 million – our employees have
been working hard to raise money for the cause and after four
months we’re already £127,000 towards our goal.
We perform more
than 400,000
water quality tests
on water samples
each year, an
average of more
than 1,000 per day.
15
Interim report 2016/17
Chief Executive Officer’s review
Interim report 2016/17
Chief Executive Officer’s review
Our financial review
An overview
Period
ended 30
September
2016 Total
Period
ended 30
September
2016
Underlying
Period
ended 30
September
2015
Year ended 31
March 2016
£m
£m
£m
£m
Revenue
1,039.5
1,024.3
1,020.7
2,039.5
Operating
expenses
772.0
772.0
714.0
1,419.4
Net finance
expense
174.5
174.5
130.4
257.2
Profit before
tax, excluding
impact of net
losses/gains
on financial
instruments
Financial performance
For the first time we’ve billed revenue for the construction of the
Thames Tideway Tunnel (TTT) - we recognised £15.2 million during
the first six months of this financial year, which is, when collected,
passed on to Bazalgette Tunnel Limited (BTL). As a result of this
unique arrangement, and the subsequent accounting treatment,
our revenue will increase but there will be no associated costs
reflected in our income statement while the TTT is built. This will
increase our profits during the construction phase but the profits
will not be supported by cash, therefore the Directors have excluded
the monies from our underlying results. The cash we collect and
pay over to BTL during construction represents a prepayment for
the use of the TTT once the project is complete.
Excluding the effects of net losses on financial instruments and
revenue attributable to BTL, our profit before tax for the six months
ended 30 September 2016 was £127.3 million (six months ended
30 September 2015: £216.8 million).
Operating expenses
We’ve seen an increase in our operational expenses of £58 million
in the first six months, driven mainly by:
142.5
127.3
216.8
485.0
Capital
expenditure
excluding
intangibles
540.9
Net debt
10,301.1
10,301.1
9,909.1
10,152.9
Dividends
paid
30.0
30.0
25.0
82.4
Gearing*
80.3%
80.3%
80.8%
81.0%
Credit rating**
Baa1 stable
Baa1 stable
Baa1 stable
Baa1 stable
540.9
562.2
1,198.7
• An increase in IT costs of circa £8 million, mainly due to the transition to the Technology and Transformation Alliance (TTA) and establishing a new digital productivity platform for our people;
• A £10 million increase in personnel costs, as we drive a step change improvement in our customer service;
• An increase in raw material spend of £7 million relating to the Thames Tideway improvement programme; and
• A £22 million increase in our depreciation costs as the Lee Tunnel and other commissioned assets are now in operation and depreciating.
Financial instruments
* Ratio of net debt to Regulatory Capital Value (“RCV”) (banking covenant)
** Representing the consolidated Corporate Family Rating assigned by Moody’s
16
Revenue
Dividends
We’ve paid dividends of £30.0 million (six months ended 30
September 2015: £25.0 million) to our parent company for the
first six months of this financial year. These dividends, in both the
current and comparative six month period, were used solely to fund
internal and external interest payments by Kemble Water Finance
Limited. Zero dividends were paid to external shareholders for the
first six months of the year.
Credit ratings
In October 2016, the rating agency Moody’s affirmed our Baa1
Corporate Family Rating (CFR) with a stable outlook, which
represents a strong investment grade rating. This supports
specific ratings of A3 and Baa3 for our Class A and Class B debt
respectively.
In September 2016, Standard and Poor’s (S&P) affirmed the credit
ratings of A- (Class A) and BBB (Class B) and maintained a negative
outlook. We expect a further review to take place in 2017.
Pensions
For this six month period, the latest triennial valuation, dated
March 2013, of our two defined benefit pension schemes has been
updated on our behalf by independent and professionally qualified
consulting actuaries, PricewaterhouseCoopers LLP. This valuation
shows that the pension deficit across both schemes has increased
to £425.8 million at 30 September 2016. This is mainly due to a
We have approximately £3.3 billion of derivative financial
instruments, which include £2.25 billion of interest rate swaps that
hedge a material element of the cost of debt we expect to borrow
in AMP 6. These derivatives relate to our long term debt and are
held to match their maturities. During the six month period a net
loss on financial instruments of £179.1 million (six months ended
30 September 2015: loss of £11.6 million) has been recognised in
the income statement, due to a fall in interest rates, RPI accretion
on swaps and foreign currency movements.
17
During the first
six months of
2016/17 we
invested over
£500 million in
the business.
A look forward.
decrease in the yields of low risk (AA-rated) corporate bonds in
the public market, which has reduced the discount rate used to
value the pension scheme liabilities. Pension scheme assets have
increased in value but not proportionately, so the deficit in the
pension scheme has increased as a result.
As agreed with the pension trustees, there is a recovery plan in
place to reduce the deficit to zero by 2025, based on the triennial
valuation dated 31 March 2013. It includes additional payments of
approximately £20 million per year across the two schemes. A new
triennial valuation, dated 31 March 2016, is currently underway
and we expect this to be completed by June 2017 – the valuation
will include a review of the recovery plan with the scheme trustees.
Taxation
We incurred a current tax charge because we’re utilising tax
losses in our parent company for which we make payment. This
was offset by the deferred tax credit due to fair value losses on
derivatives, accelerated tax depreciation on our fixed assets, and
the reduction in the UK corporation tax rate from 18% to 17%
(effective from 1 April 2020) which was enacted by Parliament on
6 September 2016. We had an overall tax credit of £73.6 million for
the first six months of the year.
18
We expect to invest approximately £1 billion in our business
again this financial year, as part of our commitment to invest
approximately £4 billion during this regulatory period. During the
first six months we invested over £500 million. This is enabling us
to make major upgrades to our network – including the Deephams
sewage treatment works improvements, mains replacements and
our connection works for the Thames Tideway Tunnel – to help us
deliver better outcomes for our customers and the environment.
As the major projects progress and complete, our investment
will reduce to a level that allows us to continue to maintain good
customer service and operational excellence, both now and in the
future.
Our
financial
statements.
We expect our revenue to be higher for 2016/17, but, at the same
time, our operational expenses are also increasing as we spend
more to drive major improvements in our customer service and
network reliability.
Steve Robertson
Chief Executive Officer
19
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Independent review report to Thames Water Utilities Limited for the six month period ended
30 September 2016
Introduction
The Directors confirm to the best of their knowledge:
We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 30
September 2016 which comprises the condensed income statement, the condensed statement of comprehensive income, the condensed statement
of financial position, the condensed statement of changes in equity, the condensed statement of cash flows and the related explanatory notes. We
have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial statements.
Statement of Directors’ responsibilities in respect of the interim report and financial
statements
The Directors have complied with the Disclosure and Transparency Rules. However, as the Company does not issue listed shares, DTR 4.2.8R in
respect of related party transactions has not been applied.
•
•
the condensed set of financial statements has been produced in accordance with IAS 34 Interim Financial Reporting; and
the interim management report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency
Rules, being an indication of important events that have occurred during the first six months of the financial year, their impact on the
condensed set of interim financial statements and a description of the principal risks and uncertainties for the remaining six months of the
year.
The above Statement of Directors’ Responsibilities was approved by the Board of Directors on 24 November 2016 and signed on its behalf by:
This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might
state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have
reached.
Directors’ responsibilities
The interim report is the responsibility of, and has been approved by, the Directors. As disclosed within the Accounting Policies, the next annual
financial statements of the Company will be prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements
included in this interim report have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.
Stuart Siddall
Chief Financial Officer
Our responsibility
Clearwater Court
Vastern Road
Reading
Berkshire
RG1 8DB
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review.
Scope of review
We conducted our review in accordance with International Standards on Review Engagements (UK and Ireland) 2410 Review of Interim Financial
Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim
financial information consists of making enquires, primarily of persons responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK
and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report
for the six months ended 30 September 2016 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU.
Robert Brent
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
24 November 2016
20
20
21
21
Thames Water Utilities Limited
Interim report and financial statements
Condensed statement of financial position
Condensed income statement
As at
For the six month period ended
Note
Revenue
Operating expenses
Profit on the sale of property, plant and equipment
Other operating income
30 September 2016
Underlying)
BTL)
£m)
£m)
3
4
Operating profit
Finance income
Finance expense
Net losses on financial instruments
(Loss)/profit on ordinary activities before taxation
Taxation on loss/(profit) on ordinary activities
Thames
Water
Utilities Limited
Limited
Thames
Water
Utilities
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
5
Profit for the period
Total)
£m)
30 September 2015
Underlying)
BTL)
£m)
£m)
Total)
£m)
1,024.3)
(772.0)
0.6)
48.9)
15.2)
-)
-)
-)
1,039.5)
(772.0)
0.6)
48.9)
1,020.7)
(714.0)
7.8)
32.7)
-)
-)
-)
-)
1,020.7)
(714.0)
7.8)
32.7)
301.8)
15.2)
317.0)
347.2)
-)
347.2)
45.7)
(220.2)
(179.1)
-)
-)
-)
45.7)
(220.2)
(179.1)
42.1)
(172.5)
(11.6)
-)
-)
-)
42.1)
(172.5)
(11.6)
(51.8)
76.6)
15.2)
(3.0)
(36.6)
73.6)
205.2)
(40.8)
-)
-)
205.2)
(40.8)
24.8)
12.2)
37.0)
164.4)
-)
164.4)
Condensed statement of other comprehensive income
For the six month period ended
Note
30 September 2016
Underlying)
BTL
£m)
£m)
Profit for the period
24.8)
12.2)
Total)
£m)
30 September 2015
Underlying)
BTL)
£m)
£m)
37.0)
164.4)
-)
Total)
£m)
164.4)
Other comprehensive income
Will not be reclassified to the income statement:
Net actuarial (losses)/gains on pension schemes
Deferred tax on net actuarial losses/(gains)
12
(180.9)
26.7)
-)
-)
(180.9)
26.7)
67.8)
(13.6)
-)
-)
67.8)
(13.6)
May be reclassified to the income statement:
(Losses)/gains on cash flow hedges
Deferred tax credit/(charge) on cash flow hedges
12
(91.2)
13.3)
-)
-)
(91.2)
13.3)
6.5)
(1.3)
-)
-)
6.5)
(1.3)
Other comprehensive (loss)/income for the period
(232.1)
-)
(232.1)
59.4)
-)
59.4)
Total comprehensive (loss)/income for the period
(207.3)
12.2)
(195.1)
223.8)
-)
223.8)
The Company’s activities above are derived from continuing activities.
Bazalgette Tunnel Limited (“BTL”) is responsible for the construction of the Thames Tideway Tunnel. For the six month period ended 30 September
2016 the Company has included, within its bills to wastewater customers, amounts which are subsequently paid to BTL, in respect of construction
costs of the Thames Tideway Tunnel. The revenue and profit on this arrangement, which is excluded from our key performance indicators, has
been disclosed separately to the Company’s underlying performance in the tables above.
The accounting policies and notes on pages 26 to 38 are an integral part of these condensed financial statements.
Note
Non-current assets
Intangible assets
Property, plant and equipment
Investment in subsidiaries
Derivative financial assets
Intercompany loans receivable
Trade and other receivables
30 September 2016
Underlying)
BTL
£m)
£m)
Total)
£m)
Underlying)
£m)
31 March 2016
BTL)
£m)
Total)
£m)
109.3)
13,760.7)
0.1)
468.8)
2,315.0)
2.1)
16,656.0)
-)
-)
-)
-)
-)
17.0)
17.0)
109.3)
13,760.7)
0.1)
468.8)
2,315.0)
19.1)
16,673.0)
65.9)
13,473.0)
0.1)
336.4)
2,315.0)
2.5)
16,192.9)
-)
-)
-)
-)
-)
1.3)
1.3)
65.9)
13,473.0)
0.1)
336.4)
2,315.0)
3.8)
16,194.2)
22.5)
1.2)
18.0)
922.5)
345.6)
384.7)
1,694.5)
-)
-)
-)
8.3)
-)
4.9)
13.2)
22.5)
1.2)
18.0)
930.8)
345.6)
389.6)
1,707.7)
20.7)
1.0)
4.4)
559.8)
289.5)
522.5)
1,397.9)
-)
-)
-)
-)
-)
-)
-)
20.7)
1.0)
4.4)
559.8)
289.5)
522.5)
1,397.9)
(1,349.2)
(1,143.9)
(20.7)
(2,513.8)
(15.2)
-)
-)
(15.2)
(1,364.4)
(1,143.9)
(20.7)
(2,529.0)
(869.4)
(1,036.9)
-)
(1,906.3)
(1.5))
-)
-)
(1.5))
(870.9)
(1,036.9)
-)
(1,907.8)
(819.3)
(2.0)
(821.3)
(508.4)
(1.5))
(509.9)
(382.6)
(9,892.4)
(1,305.2)
(865.5)
(91.6)
(425.8)
(12,963.1)
-)
-)
-)
-)
-)
-)
-)
(382.6)
(9,892.4)
(1,305.2)
(865.5)
(91.6)
(425.8)
(12,963.1)
(362.3)
(9,928.0)
(940.9)
(981.8)
(97.6)
(260.0)
(12,570.6)
-)
-)
-)
-)
-)
-)
-)
(362.3)
(9,928.0)
(940.9)
(981.8)
(97.6)
(260.0)
(12,570.6)
Net assets
2,873.6)
15.0)
2,888.6)
3,113.9)
(0.2))
3,113.7)
Equity
Called up share capital
Share premium
Other reserves
Retained earnings
29.0)
100.0)
811.2)
1,933.4)
-)
-)
-)
15.0)
29.0)
100.0)
811.2)
1,948.4)
29.0)
100.0)
892.0)
2,092.9)
-)
-)
-)
(0.2))
29.0)
100.0)
892.0)
2,092.7)
Total equity
2,873.6)
15.0)
2,888.6)
3,113.9)
(0.2))
3,113.7)
Current assets
Inventories and current intangible assets
Assets held for sale
Intercompany loans receivable
Trade and other receivables
Short term investments
Cash and cash equivalents
Current liabilities
Trade and other payables
Borrowings
Derivative financial liabilities
7
11
8
8
9
10
11
Net current liabilities
Non-current liabilities
Trade and other payables
Borrowings
Derivative financial liabilities
Deferred tax
Provisions for liabilities and charges
Retirement benefit obligations
9
10
11
12
13
The accounting policies and notes on pages 26 to 38 are an integral part of these condensed financial statements.
Bazalgette Tunnel Limited (“BTL”) is responsible for the construction of the Thames Tideway Tunnel. For the six month period ended 30 September
2016 the Company has included within its bills to wastewater customers amounts, which are subsequently paid to BTL, in respect of construction
costs of the Thames Tideway Tunnel. Balances relating to this arrangement have been disclosed separately to the Company’s underlying financial
position in the tables above. Included within trade and other receivables is the cumulative of the amount of cash collected and represents a
prepayment for the use of the Thames Tideway Tunnel on completion.
The condensed financial statements were approved by the Board of Directors on 24 November 2016 and signed on its behalf by:
Stuart Siddall
Chief Financial Officer
Registered number: 02366661 (England & Wales)
22
22
23
23
Condensed statement of cash flows
Condensed statement of changes in equity
For the six month period ended
For the six month period ended
Share)
capital)
£m)
Share)
premium)
£m)
Cash flow)
hedge reserve)
£m)
Revaluation)
reserve)
£m)
Retained)
earnings)
£m)
Total)
equity)
£m)
29.0)
100.0)
(123.6)
1,076.5)
1,521.5)
2,603.4)
Profit for the period
Profit on cash flow hedge
Deferred tax on cash flow hedge
Actuarial gain on pension scheme
Deferred tax on actuarial gain
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
6.5)
(1.3)
-)
-)
-)
-)
-)
-)
-)
164.4)
-)
-)
67.8)
(13.6)
164.4)
6.5)
(1.3)
67.8)
(13.6)
Total comprehensive income
Transfer of depreciation
Deferred tax on depreciation transfer
Dividends paid
-)
-)
-)
-)
-)
-)
-)
-)
5.2)
-)
-)
-)
-)
(19.2)
3.8)
-)
218.6)
19.2)
(3.8)
(25.0)
223.8)
-)
-)
(25.0)
29.0)
100.0)
(118.4)
1061.1)
1,730.5)
2,802.2)
Profit for the period
Loss on cash flow hedge
Deferred tax on cash flow hedge
Actuarial gain on pension scheme
Deferred tax on actuarial gain
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
(71.5)
10.0)
-)
-)
-)
-)
-)
-)
-)
402.0)
-)
-)
45.6)
(17.2)
402.0)
(71.5)
10.0)
45.6)
(17.2)
Total comprehensive income
Transfer of depreciation
Deferred tax on depreciation transfer
Reduction in deferred tax rate
Dividends paid
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
(61.5)
-)
-)
-)
-)
-)
(19.2)
3.9)
26.1)
-)
28.4)
19.2)
(3.9)
(26.1)
(57.4)
(33.1)
-)
-)
-)
(57.4)
29.0)
100.0)
(179.9)
1,071.9)
2,092.7)
3,113.7)
Profit for the period
Loss on cash flow hedge
Deferred tax on cash flow hedge
Actuarial loss on pension scheme
Deferred tax on actuarial gain/loss
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
(91.2)
13.3)
-)
-)
-)
-)
-)
-)
-)
37.0)
-)
-)
(180.9)
26.7)
37.0)
(91.0)
13.3)
(180.9)
26.7)
Total comprehensive income
Transfer of depreciation
Deferred tax on depreciation transfer
Reduction in deferred tax rate
Dividends paid
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
(77.9)
-)
-)
-)
-)
-)
(19.2)
3.5)
12.8)
-)
(117.2)
19.2)
(3.5)
(12.8)
(30.0)
(194.9)
-)
-)
-)
(30.0)
29.0)
100.0)
(257.8)
1,069.0)
1,948.4)
2,888.6)
At 1 April 2015
At 30 September 2015
At 31 March 2016
At 30 September 2016
The accounting policies and notes on pages 26 to 38 are an integral part of these condensed financial statements.
Thames
Water
Utilities Limited
Limited
Thames
Water
Utilities
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
30 September 2016
Underlying)
BTL
£m)
£m)
Operating activities:
Profit on ordinary activities after taxation
Less finance income
Add finance expense
Add loss on fair value of financial instruments
Add taxation on profit on ordinary activities
Total)
£m)
30 September 2015
Underlying)
BTL)
£m)
£m)
Total)
£m)
24.8)
(45.7)
220.2)
179.1)
(76.6)
12.2)
-)
-)
-)
3.0)
37.0)
(45.7)
220.2)
179.1)
(73.6)
164.4)
(42.1)
172.5)
11.6)
40.8)
-)
-)
-)
-)
-)
164.4)
(42.1)
172.5)
11.6)
40.8)
301.8)
253.0)
11.6)
(0.6)
(18.3)
(1.8)
(364.3)
528.1)
(5.9)
15.2)
-)
-)
-)
-)
-)
(24.0)
13.7)
-)
317.0)
253.0)
11.6)
(0.6)
(18.3)
(1.8)
(388.3)
541.8)
(5.9)
347.2)
231.0)
8.5)
(7.8)
5.1)
(12.4)
(420.1)
415.3)
8.1)
-)
-)
-)
-)
-)
-)
-)
-)
-)
347.2)
231.0)
8.5)
(7.8)
5.1)
(12.4)
(420.1)
415.3)
8.1)
Cash generated from operations
703.6)
4.9)
708.5)
574.9)
-)
574.9)
Net cash generated by operating activities
703.6)
4.9)
708.5)
574.9)
-)
574.9)
Investing activities:
Interest received
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of property, plant and equipment
42.0)
(569.9)
(55.0)
0.6)
-)
-)
-)
-)
42.0)
(569.9)
(55.0)
0.6)
40.8)
(550.9)
(2.8)
8.3)
-)
-)
-)
-)
40.8)
(550.9)
(2.8)
8.3)
Net cash used in investing activities
(582.3)
-)
(582.3)
(504.5)
-)
(504.5)
Financing activities:
(Increase)/decrease in current asset investments
New loans raised
Repayment of borrowings
Interest paid
Dividends paid
(56.2)
37.3)
(0.6)
(209.6)
(30.0)
-)
-)
-)
-)
-)
(56.2)
37.3)
(0.6)
(209.6)
(30.0)
170.2)
-)
(246.8)
(192.4)
(25.0)
-)
-)
-)
-)
-)
170.2)
-)
(246.8)
(192.4)
(25.0)
Net cash used in financing activities
(259.1)
-)
(259.1)
(294.0)
-)
(294.0)
Net increase/(decrease) in cash and cash equivalents
Net cash and cash equivalents at beginning of period
(137.8)
522.5)
4.9)
-)
(132.9)
522.5)
(223.6)
520.9)
-)
-)
(223.6)
520.9)
384.7)
4.9)
389.6)
297.3)
-)
297.3)
Operating profit
Depreciation on property, plant and equipment
Amortisation of intangible assets
Profit on sale of property, plant and equipment
Difference in pension charge and cash contribution
Increase in inventory
Increase in trade and other receivables
Increase in trade and other payables
(Decrease)/increase in provisions
Net cash and cash equivalents at end of period
No additions to property, plant and equipment during the period, or the immediately preceding period, were financed through new finance leases.
Assets transferred from developers and customers for nil consideration were recognised at their fair value.
Bazalgette Tunnel Limited (“BTL”) is responsible for the construction of the Thames Tideway Tunnel. For the six month period ended 30 September
2016 the Company has included within its bills to wastewater customers amounts, which are subsequently paid to BTL, in respect of construction
costs of the Thames Tideway Tunnel. Amounts relating to this arrangement have been disclosed separately to the Company’s underlying cash
flows in the tables above.
The accounting policies and notes on pages 26 to 38 form an integral part of these condensed financial statements.
24
24
25
25
Thames Water Utilities Limited
Interim report and financial statements
Thames
Water
Utilities Limited
Limited
Thames
Water
Utilities
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Accounting policies
Notes to the condensed financial statements
The following accounting policies have been adopted in the preparation of these financial statements. They have been applied consistently in
dealing with items which are considered material, except as noted below:
The accounting policies adopted in the preparation of these interim financial statements are consistent with those of the previous financial year and
corresponding interim reporting period, except as described below:
General information
•
Thames Water Utilities Limited (“the Company”) is a company incorporated in England & Wales and domiciled in the United Kingdom under the
Companies Act 2006. The address of the registered office is Clearwater Court, Vastern Road, Reading, RG1 8DB.
•
The Company’s principal activity is that of an appointed water and wastewater services provider, including acting as a retailer for household and
non-household customers, operating in London, the Thames Valley and surrounding area in accordance with its licence of appointment, and
remains unchanged from the previous period. The Company is also an intermediate holding company within the Kemble Water Holdings Limited
Group of companies (“the Group”).
Statement of compliance with International Financial Reporting Standards
These condensed interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the
European Union (“EU”). The condensed interim financial statements do not include all of the information required for full annual financial statements
and do not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. They should be read in
conjunction with the Annual Report and Financial Statements for the year ended 31 March 2016 prepared under International Financial Reporting
Standards (“IFRS”) as adopted by the EU and which have been filed with the Registrar of Companies.
The auditor’s report on those financial statements was unqualified and did not contain any statement under section 498(2) (accounting records or
returns inadequate or accounts or directors’ remuneration report not agreeing to records and returns), or section 498(3) (failure to obtain necessary
information and explanations).
The policies applied in these condensed interim financial statements are based on the IFRS, International Accounting Standards (“IAS”) and
International Financial Reporting Interpretations Committee (“IFRIC”) interpretations issued and effective and ratified by the EU as of 24 November
2016, the date that the Board of Directors approved these interim financial statements. Any subsequent changes to IFRS that became effective and
are adopted for 31 March 2017 could result in revisions to accounting policies applied in these interim financial statements, and if applicable, the
opening balance sheet included herein.
Principal risks and uncertainties
During the six months ended 30 September 2016, with the exception of the following risks there have been no significant changes to the principal
risks and uncertainties that were disclosed in the Annual Report and Financial Statements for the year ended 31 March 2016:
•
corporation tax on income for the six month period ended 30 September is accrued using the corporation tax rate that would be
applicable to expected total annual profit or loss;
revenue includes amounts billed to wastewater customers in respect of construction costs for the Thames Tideway Tunnel. Under specific
arrangements with Bazalgette Tunnel Limited (“BTL”) the Company, in its capacity as principal, is responsible for the billing and collection
of revenue. The Company passes the associated revenue to BTL and therefore the cost of any bad debt is borne by BTL. The revenue
and profit on this arrangement, which is excluded from our key performance indicators and is not ultimately supported by cash, has been
disclosed separately to the Company’s underlying performance; and
included within trade and other receivables is the cumulative of the amounts collected through revenue and represent a prepayment for
the use of the Thames Tideway Tunnel on completion.
A number of amendments to IFRSs became effective for the financial year beginning 1 April 2016, however the Company did not have to change its
accounting policies or make material retrospective adjustments as a result of adopting these new standards. The Company has exercised the
exemption under section 400 of the Companies Act 2006 from the requirement to prepare group financial statements as the Company and its
subsidiaries are included within the consolidated financial statements of its ultimate parent company Kemble Water Holdings Limited, an entity
registered in the United Kingdom. These condensed interim financial statements present information about the Company as an individual
undertaking and not about its group.
The Directors have considered the financial position of the Company and have concluded that it has sufficient resources for its present
requirements and is able to meet its liabilities as they fall due for the foreseeable future. Forecast cash flows, including working capital, capital
expenditure and external debt repayments, have been reviewed against the cash and funding facilities available with no material uncertainty
regarding liquidity having been identified. Additionally the forecast covenant compliance has been reviewed with no breach anticipated in the period
of assessment, the Company’s Corporate Family Rating (“CFR”) investment grade credit rating (Baa1) has been reaffirmed as stable outlook and
the Final Determination provides long term stability over pricing and costs. For these purposes the foreseeable future is taken to mean a period of at
least twelve months from the date of approval of these condensed interim financial statements. On this basis the Directors consider it appropriate to
prepare the condensed interim financial statements on the going concern basis.
1.
Significant accounting judgements and key sources of estimation uncertainty
The preparation of interim financial statements requires the Company to make judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. In preparing
these condensed interim financial statements, the significant judgements made by management in applying the Company’s accounting policies and
the key sources of estimation uncertainty were the same as those applied to the Annual Report and Financial Statements for the year ended 31
March 2016, with the exception of changes in estimates that are required in determining the charge for corporation tax.
The failure to respond to changes in the regulatory landscape due to the introduction of competition. Thames Water has finalised its
strategy and decided not to compete in the non-household market place when competition opens in April 2017. Thames Water has entered into a
sale and purchase agreement for its non-household customers with Castle Water Limited (“Castle Water”). Therefore the risk in respect of
competition now focuses on Castle Water’s readiness to operate in the market place from April 2017 allowing us to complete the sale. Should
complications or delays arise with the readiness of Castle Water, Thames Water has developed mitigation plans should it need to step in.
Brexit. Thames Water has considered the operational and financial implications of the UK’s decision to leave the EU and sees no change to its
Going Concern assumptions, Group Operating Model or Principal Risks and Uncertainties as a result of the vote. There is a prospect that UK
companies’ access to European Investment Bank (“EIB”) funding is restricted once the UK has left the EU. The Company currently owes the EIB c.
£1 billion which is due to mature over the next 16 years. Alternative funding sources are anticipated to be available if EIB funding declines following
Brexit.
Basis of Preparation
The condensed interim financial statements for the six months ended 30 September 2016, set out on pages 22 to 25, have been prepared on the
going concern basis, under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities at fair value, and
the Disclosure and Transparency Rules (“DTR”) issued by the Financial Conduct Authority, however, as the Company does not issue listed shares,
DTR 4.2.8R in respect of related party transactions has not been applied.
26
26
27
27
Thames Water Utilities Limited
Interim report and financial statements
2.
Thames
WaterUtilities
Utilities Limited
Limited
Thames
Water
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Segmental analysis
2.
Segmental analysis (continued)
Retail)
£m)
Water)
£m)
Wastewater)
£m)
Unallocated
£m)
Total)
£m)
1,017.8)
-)
-)
(915.4)
-)
9.6)
-)
-)
411.7)
-)
11.2)
-)
-)
503.7)
-)
6.9)
(6.9)
15.4)
-)
(14.5)
1,045.5)
(6.9)
15.4)
-)
(14.5)
Net revenue
102.4)
421.3)
514.9)
0.9)
1,039.5)
Operating expenses
Depreciation
Amortisation
(94.5)
(0.8)
-)
(192.9)
(85.4)
-)
(206.0)
(104.2)
-)
(18.6)
(8.1)
(11.6)
(512.0)
(198.5)
(11.6)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
(54.5)
14.5)
(9.3)
5.8)
(6.4)
(54.5)
14.5)
(9.3)
5.8)
(6.4)
(95.3)
(278.3)
(310.2)
(88.2)
(772.0)
-)
-)
-)
-)
-)
-)
0.6)
48.9)
0.6)
48.9)
Earnings before interest and tax
Net finance expense including net fair value loss on financial instruments
7.1)
-)
143.0)
-)
204.7)
-)
(37.8)
(353.6)
317.0)
(353.6)
The Company has a large and diverse customer base and consequently there is no significant reliance on any single customer such that no one
customer exceeds 10% of total revenues in any reportable segment.
Profit/(loss) before tax for the period
7.1)
143.0)
204.7)
(391.4)
(36.6))
The Company is subject to economic regulation by Ofwat and operates under a licence to provide water and wastewater services within a defined
geographical region, being London, the Thames Valley and the surrounding area. Therefore management considers there to be only one single
geographical location of business.
Six months ended 30 September 2015:
Retail)
£m)
Water)
£m)
Wastewater)
£m)
Unallocated
£m)
Total)
£m)
1,017.8)
(914.1)
-)
9.4)
409.4)
-)
4.2)
504.7)
-)
6.4)
-)
(17.1)
1,037.8
-)
(17.1)
Net revenue
103.7)
418.8)
508.9)
(10.7))
1,020.7)
Operating expenses
Depreciation
Amortisation
(93.8)
(0.6)
-)
(177.7)
(87.3)
-)
(192.8)
(95.0)
-)
(14.9)
(8.6)
(8.5)
(479.2)
(191.5)
(8.5)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
(39.5)
17.1
6.5
6.9
(25.8)
(39.5)
17.1
6.5
6.9
(25.8)
(94.4)
(265.0)
(287.8)
(66.8)
(714.0)
-)
-)
-)
-)
-)
-)
7.8)
32.7)
7.8)
32.7)
Earnings before interest and tax
Net finance expense including net fair value loss on financial instruments
9.3)
-)
153.8)
-)
221.1)
-)
(37.0)
(142.0)
347.2)
(142.0)
Profit/(loss) before tax for the period
9.3)
153.8)
221.1)
(179.0)
205.2)
IFRS 8 Operating Segments requires segmental information to be presented on the same basis as that used for internal management reporting.
Segmental information is reported internally on a monthly basis by the “Operating Companies” (representing individual business units rather than
separate legal entities) to the Executive Committee. The Executive Committee, responsible for the day-to-day running of the business, is headed
by the Chief Executive Officer and is also comprised of the Chief Financial Officer and the Company’s functional directors. Consequently for the
purposes of IFRS 8 the Executive Committee is considered to be the Chief Operating Decision Maker (“CODM”) of the Company.
Management considers that the Company’s reportable segments are those used by the Executive Committee for the purposes of resource
allocation and to assess the Company’s performance. These segments are also aligned with the internal business structure and the regulatory
environment in which the Company operates, and therefore may differ from Ofwat definitions, which are as follows:
Retail:
comprising both the household and non-household Operating Companies and provides certain customer-facing activities
including billing and revenue collection;
Water:
responsible for all aspects of raw water abstraction and treatment as well as the distribution of high quality drinking water to
household and non-household customers; and
Wastewater:
responsible for all aspects of wastewater collection, treatment and safe disposal. Wastewater will be responsible for the
construction of interface works to the Thames Tideway Tunnel.
The CODM reviews the non-household retail and household retail Operating Companies as a whole for the purposes of financial performance,
monitoring and assessment and this is consistent with internal management reporting. The retail non-household and household Operating
Companies have similar economic characteristics and are managed as one single business under a common Managing Director (“MD”), CFO and
management team. Consequently these have been aggregated into a single reportable segment for the purposes of this financial statements
disclosure. No other segments have been presented on an aggregated basis.
Other activities conducted by the Company primarily relate to certain non-regulated activities and shared corporate services that have not been
included within the above segments. Management does not consider these activities to represent a separate reportable segment and consequently
for the below disclosures they have been aggregated into a single caption designated “Unallocated”.
Segmental performance
Transactions between reportable segments are included within segmental results in accordance with the Company’s accounting policies. These are
eliminated on production of the Company’s financial statements, as shown within the reconciliation presented. Information regarding the
performance results of each reportable segment are provided in line with that evaluated by the CODM and is based on Earnings before Interest and
Tax (“EBIT”).
Financial income and expenses are not allocated to the reportable segments as this activity is managed centrally by the Company’s treasury
function, which manages the overall cash and net debt position of the Company. Similarly the corporation tax credit or charge is not allocated to the
individual reportable segments as this is considered to be borne by the Company as a whole.
A segmental analysis of revenue and EBIT has been presented overleaf:
Six months ended 30 September 2016:
External revenue
Reallocation of property sales proceeds to profit on sale of PP&E
BTL
Inter-segment revenue
Statutory reclassification of bad debt expenses
Reconciliation to statutory operating expenditure:
Statutory depreciation adjustments
Statutory reclassification of bad debt expenses
Statutory reclassification of other operating income
Statutory reclassification of pension costs
Other
Total statutory operating expenditure
Profit on sale of property, plant and equipment
Other operating income
External revenue
Inter-segment revenue
Statutory reclassification of bad debt expenses
Reconciliation to statutory operating expenditure:
Statutory depreciation adjustments
Statutory reclassification of bad debt expenses
Statutory reclassification of other operating income
Statutory reclassification of pension costs
Other
Total statutory operating expenditure
Profit on sale of property, plant and equipment
Other operating income
28
28
29
29
2.
Thames
WaterUtilities
Utilities Limited
Limited
Thames
Water
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
3.
Segmental analysis (continued)
Operating expenses
30 September 2016
Total)
£m)
30 September 2015
Total)
£m)
Wages and salaries
Social security costs
Pension costs – defined benefit schemes
Pension costs – defined contribution schemes
Severance costs
102.2)
11.4)
12.4)
3.2)
0.3)
96.0)
9.2)
12.0)
2.4)
0.1)
Total employee costs
Power
Carbon reduction commitment
Raw materials and consumables
Charge for bad and doubtful debts
Rates
Depreciation of property, plant and equipment
Amortisation of intangible assets
Operating lease rental – plant and machinery
Operating lease rental – other
Research and development expenditure
Other operating costs
129.5)
50.3)
3.1)
26.3)
13.0)
48.4)
253.0)
11.6)
0.4)
12.3)
1.4)
318.7)
)
868.0)
(96.0)
)
772.0)
119.7)
52.1)
3.3)
19.3)
12.7)
48.1)
231.0)
8.5)
3.2)
4.8)
3.6)
273.3)
30 September 2016)
£m)
30 September 2015)
£m)
Power income
Requisitions and diversions charges
Service connections charges
Release from deferred income – infrastructure charges
Rental income
Other income
4.8)
11.8)
13.2)
7.7)
4.5)
6.9)
3.8)
11.6)
7.6)
7.0)
2.7)
-)
Total
48.9)
32.7)
Segmental net assets
Separate segmental analysis of total assets and total liabilities are not reviewed by the CODM. Instead the information provided to the CODM
comprises a measure of capital expenditure and segmental net assets. Certain centrally held provisions (including deferred tax liabilities),
capitalised borrowing costs, external financing obligations and retirement benefit obligations are not allocated to the individual segments as they are
considered to be borne by the Company as a whole.
A segmental analysis of the net asset position of each segment and level of capital expenditure is presented below:
As at 30 September 2016:
Retail)
£m)
Water)
£m)
Wastewater)
£m)
Unallocated
£m)
Total)
£m)
Total assets
Total liabilities
886.9)
(690.7)
5,130.9)
(338.6)
6,775.5)
(469.4)
1,704.5)
(10,821.2)
14,497.8)
(12,319.9)
196.2)
4,792.3)
6,306.1)
(9,116.7)
2,177.9)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
1,384.0)
(216.9)
239.8)
15.1)
(645.5)
(236.4)
186.2)
(15.6)
1,384.0)
(216.9)
239.8)
15.1)
(645.5)
(236.4)
186.2)
(15.6)
196.2)
4,792.3)
6,306.1)
(8,406.0)
2,888.6)
22.1)
207.6)
285.7)
79.6))
595.0)
As at 31 March 2016:
Retail)
£m)
Water)
£m)
Wastewater)
£m)
Unallocated
£m)
Total)
£m)
Total assets
Total liabilities
470.9)
(205.6)
4,909.1)
(230.1)
6,480.6)
(443.0)
1,388.6)
(10,273.5)
13,249.2)
(11,152.2)
265.3)
4,679.0)
6,037.6)
(8,884.9)
2,097.0)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
-)
1,384.0)
(162.4)
200.8)
9.9)
(392.6)
(16.7)
(6.3)
1,384.0)
(162.4)
200.8)
9.9)
(392.6)
(16.7)
(6.3)
265.3)
4,679.0)
6,037.6)
(7,868.2)
3,113.7)
26.1)
387.0)
644.9)
168.0)
1,226.0)
Net assets/(liabilities)
Reconciliation to statutory net assets:
Fair value asset
Depreciation of fair value asset
Capitalised borrowing costs
Fair value of self-lay sewers
Fair value of derivatives
Statutory pension adjustment
Tax adjustments
Other
Statutory net assets
Capital expenditure on property, plant and equipment and intangibles
Net assets/(liabilities)
Reconciliation to statutory net assets:
Fair value asset
Depreciation of fair value asset
Capitalised borrowing costs
Fair value of self-lay sewers
Fair value of derivatives
Statutory pension adjustment
Other
Statutory net assets
Capital expenditure on property, plant and equipment and intangibles
30
30
Gross operating costs
Own work capitalised
Net operating expenses
4.
779.6)
(65.6)
714.0)
Other operating income
Power income comprises income from the sale of internally generated electricity.
31
31
5.
Thames
WaterUtilities
Utilities Limited
Limited
Thames
Water
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
7.
Taxation
30 September 2016
Underlying)
BTL)
£m)
£m)
Current tax:
Amounts (receivable)/payable in respect of
group relief
Deferred tax:
Origination and reversal of timing differences
Adjustment in respect of prior periods
Adjustment in respect of corporation tax changes
Tax on (loss)/profit on ordinary activities
Total)
£m)
30 September 2015
Underlying)
BTL)
£m)
£m)
Land &)
buildings)
£m)
Plant &)
equipment)
£m)
Network)
assets)
£m)
Assets under)
construction)
£m)
Total)
£m)
Cost:
At 1 April 2015
Additions
Transfers between categories
Disposals
3,300.6)
-)
47.8)
(27.2)
5,830.0)
-)
364.1)
(2.2)
5,368.0)
5.1)
1,102.2)
(0.1)
2,312.0)
1,193.6)
(1,514.1)
-)
16,810.6)
1,198.7)
-)
(29.5)
At 31 March 2016
Additions
Transfers between categories
Transfers to assets held for sale
Disposals
3,321.2)
75.4)
55.8)
(0.4)
-)
6,191.9)
99.3)
250.7)
-)
(1.5)
6,475.2)
99.9)
53.5)
-)
-)
1,991.5)
266.3)
(360.0)
-)
-)
17,979.8)
540.9)
-)
(0.4)
(1.5)
At 30 September 2016
3,452.0)
6,540.4)
6,628.6)
1,897.8)
18,518.8)
Depreciation:
At 1 April 2015
Depreciation charge
Disposals
(811.8)
(49.0)
26.0)
(3,144.2)
(285.3)
1.8)
(120.8)
(123.6)
0.1)
-)
-)
-)
(4,076.8)
(457.9)
27.9)
Total)
£m)
At 31 March 2016
Depreciation charge
Transfers to assets held for sale
Disposals
(834.8)
(26.5)
0.2)
-)
(3,427.7)
(159.8)
-)
1.5)
(244.3)
(66.7)
-)
-)
-)
-)
-)
-)
(4,506.8)
(253.0)
0.2)
1.5)
Total)
£m)
(0.3)
3.0)
2.7)
-)
-)
-)
(15.3)
(1.3)
(59.7)
(76.3)
-)
-)
-)
-)
(15.3)
(1.3)
(59.7)
(76.3)
40.8)
-)
-)
-)
-)
-)
40.8)
-)
-)
(76.6)
3.0)
(73.6)
40.8)
-)
40.8)
The corporation tax charge is based upon the standard rate of corporation tax in the UK of 20%. The deferred tax liability at 30 September 2016
was calculated based on the rate of 17% substantively enacted at the balance sheet date. The interim corporation tax charge for the six month
period ended 30 September 2016 is based on the forecast effective tax rate for the full year to 31 March 2017 applied to the losses earned in the six
months to 30 September 2016.
The current tax charge for the six month period ended 30 September 2016 is lower (2015: lower) than the standard rate of corporation tax in the
UK. The differences are explained below:
30 September 2016
Underlying)
BTL)
Total)
£m)
£m)
£m)
Property, plant and equipment
30 September 2015
Underlying)
BTL)
£m)
£m)
(Loss)/profit on ordinary activities before taxation
(51.8)
15.2)
(36.6)
205.2)
-)
205.2)
At 30 September 2016
(861.1)
(3,586.0)
(311.0)
-)
(4,758.1)
Current tax at 20% (2015: 20%)
(10.3)
3.0)
(7.3)
41.0)
-)
41.0)
Net book value:
At 30 September 2016
2,590.9)
2,954.4)
6,317.6)
1,897.8)
13,760.7)
At 31 March 2016
At 31 March 2015
2,486.4)
2,488.8)
2,764.2)
2,685.8)
6,230.9)
5,247.2)
1,991.5)
2,312.0)
13,473.0)
12,733.8)
Effects of:
Disallowable expenditure
Non-taxable income including property disposals
Group relief not paid at standard tax rate
Tax rate change on temporary timing differences
Adjustments to tax charge in respect of prior periods – deferred tax
1.3)
(1.8)
(6.5)
(58.0)
(1.3)
-)
-)
-)
-)
-)
1.3)
(1.8)
(6.5)
(58.0)
(1.3)
2.6)
(2.8)
-)
-)
-)
-)
-)
-)
-)
-)
2.6)
(2.8)
-)
-)
-)
Total tax (credit)/charge
(76.6)
3.0)
(73.6)
40.8)
-)
40.8)
£39.0m of borrowing costs were capitalised in the period (31 March 2016: £114.4m). The effective annual capitalisation rate for borrowing costs
was 4.94% (31 March 2016: 4.22%).
The Company intends to utilise tax losses available in its parent company for the year ended 31 March 2017. As a result, the Company intends to
reduce its claims for tax relief on its capital expenditure in this period. The Company expects to pay £2.7m to its parent company for the tax losses
relating to the six months to 30 September 2016, which is shown in the income statement as a current tax charge in respect of the current year. The
Company is paying for the tax losses at a rate which is lower than the standard rate of corporation tax, which reflects the value of the tax losses to
the Company. This results in a reduction of the current tax charge of £6.5m.
A reduction in the UK corporation tax rate from 18% to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. This has
resulted in an overall deferred tax credit in the income statement of £59.7m, relating primarily to fixed assets.
6.
Dividends
30 September 2016)
£m)
31 March 2016)
£m)
June
September
January
-)
30.0)
-)
25.0)
-)
57.4)
Total
30.0)
82.4)
The aggregate amount of dividends proposed but not paid nor recognised as liabilities at the period end is £nil (31 March 2016: £nil).
No distributions in the period were made to ultimate shareholders (31 March 2016: £nil). The dividend ultimately paid to Kemble Water Finance
Limited of £28.0m (31 March 2016: £55.0m) was used to enable it to continue to service its external debt.
32
32
33
33
8.
10.
Trade and other receivables
30 September 2016
Underlying)
BTL)
£m)
£m)
Non-current:
Prepayments and accrued income
Other receivables
Current:
Gross trade receivables
Less doubtful debt provision
Net trade receivables
Amounts owed by group undertakings
Insurance claims receivable
Prepayments and accrued income
Other receivables
Total
Thames
WaterUtilities
Utilities Limited
Limited
Thames
Water
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Total)
£m)
Underlying)
£m)
31 March 2016
BTL)
£m)
Total)
£m)
-)
2.1)
2.1)
17.0)
-)
17.0)
17.0)
2.1)
19.1)
-)
2.5)
2.5)
1.3)
-)
1.3)
1.3)
2.5)
3.8)
775.0)
(170.8)
8.5)
(0.2)
783.5)
(171.0)
409.3)
(189.7)
-)
-)
409.3)
(189.7)
604.2)
2.3)
27.1)
251.0)
37.9)
922.5)
8.3)
-)
-)
-)
-)
8.3)
612.5)
2.3)
27.1)
251.0)
37.9)
930.8)
219.6)
1.1)
20.3)
276.2)
42.6)
559.8)
-)
-)
-)
-)
-)
-)
219.6)
1.1)
20.3)
276.2)
42.6)
559.8)
924.6)
25.3)
949.9)
562.3)
1.3)
563.6)
Borrowings
Secured bank loans
Amounts owed to group undertakings
Interest payable on secured bank loans
Interest payable on amounts owed to group undertakings
Total
Disclosed within current liabilities
Disclosed within non-current liabilities
Total
30 September 2016)
£m)
31 March 2016)
£m)
2,281.3)
8,601.1)
10,882.4)
2,220.2)
8,547.4)
10,767.6)
4.7)
149.2)
153.9)
3.8)
193.5)
197.3)
11,036.3)
10,964.9)
1,143.9)
9,892.4)
1,036.9)
9,928.0)
11,036.3)
10,964.9)
The secured bank loans refers to an arrangement whereby each Obligor (representing each of the companies within the securitisation group) has
entered into a Security Trust and Intercompany Deed (“STID”) with the Security Trustee. Pursuant to this arrangement, Thames Water Utilities
Holdings Limited has guaranteed the obligations of each other Obligor under the finance agreement. Additionally, Thames Water Utilities Limited,
and its wholly owned subsidiaries, has guaranteed the obligations of each other under the finance agreement, in each case to the Security Trustee.
The Directors consider that the carrying amount of trade and other receivables is approximately equal to their fair value.
As at 30 September 2016, amounts owed to group undertakings, including interest, are unsecured and include the following:
Prepayments and accrued income at 30 September 2016 includes £209.3 million (31 March 2016: £245.0m) of water and wastewater income not
billed.
•
9.
•
Trade and other payables
30 September 2016
Underlying)
BTL)
£m)
£m)
Non-current:
Accruals and deferred income
Current:
Trade payables – operating
Trade payables – capital
Amounts owed to group undertakings
Other taxation and social security
Amounts payable in respect of group relief
Accruals and deferred income
Amounts owed to Bazalgette Tunnel Limited
Other payables
Total
Total)
£m)
Underlying)
£m)
31 March 2016
BTL)
£m)
Total)
£m)
382.6)
-)
382.6)
362.3)
-)
362.3)
283.7)
160.0)
53.8)
5.8)
14.0)
826.2)
-)
5.7)
1,349.2)
-)
-)
-)
-)
-)
9.8)
5.4)
-)
15.2)
283.7)
160.0)
53.8)
5.8)
14.0)
836.0)
5.4)
5.7)
1,364.4)
302.0)
206.9)
51.7)
5.7)
11.3)
284.2)
-)
7.6)
869.4)
-)
-)
-)
-)
-)
-)
1.5)
-)
1.5)
302.0)
206.9)
51.7)
5.7)
11.3)
284.2)
1.5)
7.6)
870.9)
1,731.8)
15.2)
1,747.0)
1,231.7)
1.5)
1,233.2)
Accruals and deferred income at 30 September 2016 includes £535.8 million (31 March 2016: £85.7m) of receipts in advance from customers for
water and wastewater charges, and £97.5 million (31 March 2016: £nil) of net proceeds in relation to the sale of the Retail Non-Household
business.
Amounts owed to group undertakings at 30 September 2016 includes £52.8 million (31 March 2016: £51.7m) relating to the settlement of group
relief. This balance, which has subsequently been paid post period end, includes interest payable at the rate of 4.29% which is the market rate of
interest at the time of the transaction.
£2,857.4 million (31 March 2016: £2,856.3m) owed to Thames Water Utilities Finance Limited, a subsidiary undertaking. Financing costs
arising in Thames Water Utilities Finance Limited are directly recharged under mirrored interest terms for all loans except for one loan, a
£225.0 million 6.59% secured bond due in 2021, which was loaned on with a margin of one basis point.
£5,892.9 million (31 March 2016: £5,884.6m) owed to Thames Water Utilities Cayman Finance Limited, a subsidiary undertaking. All
costs are directly recharged under mirrored interest terms, and an additional margin of ten basis points.
The capital structure of the Company consists of net debt and equity as follows:
30 September 2016)
£m)
31 March 2016)
£m)
Cash and cash equivalents
Short term investments
Secured bank loans
Amounts owed to group undertakings
Interest payable on secured bank loans
Interest payable on amounts owed to group undertakings
Net debt
389.6)
345.6)
(2,281.3)
(8,601.1)
(4.7)
(149.2)
(10,301.1)
522.5)
289.5)
(2,220.2)
(8,547.4)
(3.8)
(193.5)
(10,152.9)
Amounts owed to group undertakings
Interest payable on secured bank loans
Interest payable on amounts owed to group undertakings
Unamortised debt issuance costs and discount
Derivative financial liabilities
Net debt (covenant basis)
300.0)
4.7)
149.2)
(66.7)
(189.3)
(10,103.2)
300.0)
3.8)
193.5)
(69.1)
(198.6)
(9,923.3)
2,888.6)
3,113.7)
Equity attributable to owners of the Company
Net debt (covenant basis) excludes amounts owed to group undertakings for which there is no related external debt, accrued interest, unamortised
debt issuance costs and discounts, and includes derivative financial liabilities related solely to accretion on index-linked swaps and the effect of
movement in foreign exchange rate to one cross currency swap held in TWUL. Amount owed to group undertaking include loan from intermediate
subsidiaries, Thames Water Utilities Cayman Finance Limited of £100 million (31 March 2016: £100 million), and Thames Water Utilities Finance
Limited of £200 million (31 March 2016: £200 million).
The Directors consider that the carrying amount of trade and other payables is approximately equal to their fair value.
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35
11.
Thames
WaterUtilities
Utilities Limited
Limited
Thames
Water
Interim
report
and
financial
statements
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
11.
Fair value of financial instruments
Fair value of financial instruments (continued)
Financial assets:
Fair value measurements
The fair value of financial assets and liabilities represents the price that would be received to sell an asset or paid to transfer a liability between
informed and willing parties, other than in a forced or liquidation sale at the measurement date. The techniques for determining the fair value of
financial instruments are classified under the hierarchy defined in IFRS 13 Fair Value Measurement which categorises inputs to valuation
techniques into levels 1-3 based on the degree to which the fair value is observable. Unless otherwise stated all of the Company’s inputs to
valuation techniques are level 2 – the fair value is determined from inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly. The table below sets out the valuation basis of financial instruments held at fair value as at 30 September 2016:
Level 2
30 September 2016)
£m)
30 September 2016
Book value)
Fair value)
£m)
£m)
Non-current
Amounts owed by group undertakings
Derivative financial instruments – options
1
31 March 2016)
£m)
Financial assets – derivative financial instruments
Options
468.8)
336.4)
Financial liabilities – derivative financial instruments
Cross currency swaps
Interest rate swaps
Index-linked swaps
Forward starting interest rate swaps
Options
71.1)
59.6)
470.7)
255.7)
468.8)
86.4)
2.2)
296.5)
219.4)
336.4)
Net total
857.1)
604.5)
Current
Short term investments
Cash and cash equivalents
Amounts owed by group undertakings
Total
31 March 2016
Book value)
Fair value)
£m)
£m)
2,315.0)
468.8)
2,783.8)
2,315.0)
468.8)
2,783.8)
2,315.0)
336.4)
2,651.4)
2,315.0)
336.4)
2,651.4)
345.6)
389.6)
18.0)
753.2)
345.6)
389.6)
18.0)
753.2)
289.5)
522.5)
4.4)
816.4)
289.5)
522.5)
4.4)
816.4)
3,537.0)
3,537.0)
3,467.8)
3,467.8)
Amounts owed to group entities include bonds and private placements issued by subsidiary entities, which are publicly traded and the proceeds
from these transactions are loaned to the Company through intercompany agreements. The Company does not issue any bonds directly to the
public markets.
The fair value of amounts owed to group entities represents the market value of the publicly traded underlying bonds and associated derivatives.
For private placements the fair value is determined by discounting expected future cash flows using a risk-free rate plus the Company’s credit
spread.
1
The fair value of derivative financial instruments, including interest rate swaps, cross currency swaps, index linked swaps and options, are
measured using discounted cash flows. The future cash flows are estimated based on observable forward interest rates, inflation rates and
discounted at a rate that reflects the credit risk of the Company and counterparties. Currency cash flows are translated at spot rate.
As at 30 September 2016, the Company holds two offsetting options with equal and opposite values of £468.8 million (31 March 2016: £336.4m) in
relation to the £400.0 million Puttable Callable Resettable (“PCR”) Bond held in Thames Water Utilities Cayman Finance Limited. This value of the
liability would be the cost to the Company of settling the option in cash and the value of the asset is the reciprocal value to the Company of, instead,
choosing to remarket the original bond for a 40 year period (see note 14).
Comparison of fair value of financial instruments with their carrying amounts
The fair value of floating rate debt instruments is assumed to be the nominal value of the primary loan and adjusted for credit risk if this is
significant. The fair value of index linked debt instruments is based on the nominal value of the debt plus accretion already accrued and accretion
expected to accrue to maturity.
12.
Deferred tax
An analysis of movements in the major deferred tax liabilities and assets recognised by the Company is set out below:
Accelerated)
depreciation)
£m)
Retirement)
benefits)
£m)
Cash flow)
hedge)
£m)
Other)
£m)
Total)
£m)
At 1 April 2015
Credit/(charge) to income
Credit/(charge) to equity
(1,204.8)
99.4)
-)
70.8)
6.8)
(30.8)
80.1)
(12.2)
8.7)
15.1)
(14.9)
-)
(1,038.8)
79.1)
(22.1)
At 31 March 2016
Credit/(charge) to income
Credit/(charge) to equity
(1,105.4)
52.6)
-)
46.8)
(1.1)
26.7)
76.6)
25.2)
13.3)
0.2)
(0.4)
-
(981.8)
76.3)
40.0)
At 30 September 2016
(1,052.8)
72.4)
115.1)
(0.2)
865.5)
The carrying amounts of the Company’s trade and other receivables and trade and other payables are considered to be approximate to their fair
values. The fair values and carrying values of the Company’s other financial assets and financial liabilities are set out in the tables below.
Financial liabilities:
Non-current
Bank loans
Floating rate
Index linked
Fixed rate
Amounts owed to group undertakings
Derivative financial instruments
Cross currency swaps
Interest rate swaps
Index linked swaps
Forward starting interest rate swaps
Options
Current
Bank loans
Floating rate
Index linked
Amounts owed to group undertakings
Interest payable
Derivative financial instruments
Index linked swaps
Total
36
36
30 September 2016
Book value)
Fair value)
£m)
£m)
31 March 2016
Book value)
Fair value)
£m)
£m)
319.3)
1,252.9)
158.2)
8,162.0)
319.3)
1,252.9)
158.2)
12,132.0)
469.0)
1,231.2)
119.4)
8,108.4)
469.0)
1,231.2)
119.4)
10,335.7)
71.1)
59.6)
450.0)
255.7)
468.8)
11,197.6)
71.1)
59.6)
450.0)
255.7)
468.8)
15,167.6)
86.4)
2.2)
296.5)
219.4)
336.4)
10,868.9)
86.4)
2.2)
296.5)
219.4)
336.4)
13,096.2)
350.0)
200.9)
439.1)
153.9)
350.0)
200.9)
439.1)
153.9)
200.0)
200.5)
439.0)
197.4)
200.0)
200.5)
444.4)
197.4)
20.7)
1,164.6)
20.7)
1,164.6)
--)
1,036.9)
--)
1,042.3)
12,362.2)
16,332.2)
11,905.8)
14,138.5)
Deferred tax assets and liabilities have been offset in the balance sheet. The offset amounts, which are to be recovered/settled after more than 12
months are as follows:
Deferred tax asset
Deferred tax liability
Total
30 September 2016)
£m)
31 March 2016)
£m)
187.5)
(1,053.0)
123.6)
(1,105.4)
(865.5)
(981.8)
37
37
Thames Water Utilities Limited
Interim report and financial statements
Thames Water Utilities Limited
Interim report and financial statements
13.
Provisions for liabilities and charges
Emissions)
provision)
£m)
Insured)
liabilities)
£m)
Restructuring)
provision)
£m)
AMP4)
provision)
£m)
Other)
provisions)
£m)
Total)
£m)
At 1 April 2015
Utilised during the period
Charge/(credit) to income statement
Transfer to current liabilities
-)
-)
7.0)
-)
45.7)
-)
(0.3)
-)
12.3)
(6.3)
(5.4)
-)
7.7)
(1.4)
-)
(2.4)
32.2)
(1.8)
10.3)
-)
97.9)
(9.5)
11.6)
(2.4)
At 31 March 2016
Utilised during the period
Charge/(credit) to income statement
Transfer from current liabilities
7.0)
(6.5)
3.0)
-)
45.4)
-)
1.0)
-)
0.6)
(0.4)
-)
-)
3.9)
(1.0)
-)
0.2)
40.7)
(0.1)
(2.2)
-)
97.6)
(8.0)
1.8)
0.2)
3.5)
46.4)
0.2)
3.1)
38.4)
91.6)
At 30 September 2016
Emissions provisions relate to the obligation to purchase carbon emissions allowances.
The insured liability provision is in respect of insurance claims notified. A receivable in respect of these obligations has been included in note 8
representing the reimbursement value from captive and third party insurance companies net of retentions. Timing of settlement for these claims is
uncertain and therefore amounts provided have been classified as non-current.
The AMP4 provision represents agreed settlement in respect of an information request received from Ofwat issued under section 203 of the Water
Industry Act 1991 concerning the properties claimed as safeguarded from internal sewer flooding by capital schemes completed in 2009/10. The
provision is utilised against contributions to various charity schemes. The associated outflows are expected to arise over AMP6.
Other provisions principally relate to a number of legal claims against the Company and represents management’s best estimate of the value of
settlement and costs. Timing of settlement for these claims is uncertain and therefore amounts provided have been classified as non-current.
14.
Contingent liabilities
There are claims arising in the normal course of business, which are in the process of negotiation. The Company has set aside amounts considered
appropriate for all legal and similar claims.
In April 2018, if interest rates are below a certain level, a bond with par value of £400.0 million (see note 10) will either be remarketed for the
remaining 40 year period or the Company will settle the related derivative contract (low strike call option) and the bond will be redeemed at par. If
the Company decided to settle the derivative at this date, it would result in a cash outflow which reflects the fair value of the derivative at that date.
As at 30 September 2016 the fair value of the derivative is £468.8 million (31 March 2016: £336.4m). The Company expects that should it wish to
take the opportunity it will be able to successfully remarket the bonds at fair value and a cash settlement will not be required.
15.
Intermediate and ultimate parent company and controlling party
Thames Water Utilities Holdings Limited, a company incorporated in the United Kingdom, is the immediate parent company. Kemble Water Finance
Limited, a company incorporated in the United Kingdom, is an intermediate parent company and is the smallest group to consolidate these financial
statements. The Directors consider that Kemble Water Holdings Limited, a company incorporated in the United Kingdom, is the ultimate and
controlling party and the largest group to consolidate these financial statements.
Copies of the accounts of all the above entities may be obtained from The Company Secretary’s Office, Thames Water, Clearwater Court, Vastern
Road, Reading, Berkshire, RG1 8DB.
Our finances
explained.
You can find out more
information about our
finances in ‘Our Finances
Explained’ available at:
thameswater.co.uk/ourfinances
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