Annual Report • Mar 31, 2016
Annual Report
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BRISTOL WATER plc
ANNUAL REPORT 2016 Registered number - 2662226
| Page | |
|---|---|
| Chairman's Welcome | 3 |
| CEO Statement | 5 |
| Strategic Report | 10 |
| Corporate Responsibility Report | 40 |
| Board of Directors | 47 |
| Directors' Report | 49 |
| Corporate Governance Report | 53 |
| Remuneration Committee Report | 69 |
| Income Statement | 80 |
| Statement of Comprehensive Income | 80 |
| Statement of Financial Position | 81 |
| Statement of Changes In Equity | 82 |
| Cash Flow Statement | 83 |
| Notes to the Financial Statements | 84 |
| Independent Auditors' Report | 118 |
BRISTOL WATER plc supplies water to approximately 1.2 million people and businesses in an area of almost 2,400 square kilometres centred on Bristol.
The water industry is experiencing change on a scale not seen since privatisation in the early 1990s. All companies are having to respond and prepare for retail competition and a regulatory climate that seeks to reduce the cost of utilities to customers whilst ensuring the resilience of the underlying infrastructure.
At Bristol Water, we will respond to these changes in a way that continues to put our customers first.
Since privatisation, the water industry in general has been focused on investment in infrastructure at a price to customers that was deemed acceptable. Now every cost to the customer has to represent good value for money; we have to be smarter in engineering and maintaining our assets, manage risks better and deliver this and improved customer service at a lower cost.
Looking back at 2015/16, whilst the CMA redetermination provided the stability we needed it set out significant cost challenges. We know it is in the interest of our customers and our business to be as efficient as we can. In the last year we have responded to these challenges. We have had to make some tough business decisions, including stopping our final salary pension scheme and reducing our workforce by 10% in the largest restructure in our company's recent history. Through the restructure, we have taken a major leap forward in terms of modernising and now have an operating model that will help us meet the changes ahead.
All these initiatives have been part of a bundle of measures we have put in place to put our business on the best possible platform to meet the challenges that lie ahead.
Retail non-household competition is upon us, and we are deeply immersed in preparing for Open Water and developing our new wholesale/retail interface. Retail household competition is on the horizon.
Despite the disruption and upheaval, we have had a good year in terms of performance.
The 2015-2020 infrastructure and mains renovation schemes are now underway, and we have also been working on optimisation at our treatment works to help improve efficiency and save costs. All this is contributing to our recent ISO 50001 status, which is a significant achievement for the company and demonstrates our deep commitment to efficiency.
We recognise that our 1.2 million customers have a wide range of needs and preferences in the way they access our services and how we communicate with them. One thing people always say they like about Bristol Water is the ability to pick up the phone and speak to us straight away – and we are not changing that. But this year we have added Twitter and now use SMS messaging and voicemail to contact our customers if there's a supply issue.
We value our customers' feedback and have been improving these channels so there are more opportunities to hear their views. Across the many surveys we conduct, there has been an uplift in ratings for service levels, reputation and value for money, so we are clearly in a good direction of travel.
I was personally encouraged by the positive feedback from in-depth interviews that were conducted with a wide range of key stakeholders. The general feeling was that Bristol Water has been seen to have picked itself up from a difficult year and moved swiftly to deal with the challenges of our Price Review.
Looking forward, we are determined to develop and build on this year's performance and are working on initiatives to ensure we continue to deliver improved customer service alongside enhanced operational efficiency.
Bristol Water has faced many challenges in the past year; these have been industry wide as well as specifically our own and reflect the pressure to deliver more for less, which every customer-focused business is facing. Against this backdrop of challenge and change we have shown our continuing commitment to deliver a great service to our customers.
In the next few pages I report on the highlights of the financial year under review. A more comprehensive review of our key performance against the regulatory targets set by Ofwat is included in the Strategic Report.
We are emerging from a year of tough financial reconciliation following our appeal against Ofwat's draft determination. The principal area of difference was the gap in our planned expenditure (totex) and Ofwat's view of efficient costs, which led to us facing significant challenge in our 2015-2020 regulatory period (AMP 6) Business Plan. In the months that followed we were unable to converge with Ofwat's view of efficient totex and a significant gap remained, which led to our request for a referral to the Competition and Markets Authority (CMA).
The CMA's Final Determination was delivered in October 2015 and led to a better outcome for the business but was significantly lower than our proposed business plan, with average household bills reduced by 16% (compared with Ofwat's 19% reduction and Bristol Water's 5% reduction). The CMA determined that we should not proceed with some of the enhancement schemes that we proposed, but still allowed for an improvement in our supply network. For the allowed scope the CMA set the cost allowance 10% higher than Ofwat's Final Determination. In addition, despite the CMA reflecting recent downward market movements, the redetermination produced a better result for financing costs, regulatory targets and financeability. In reaching its conclusions, the CMA adopted a different approach which resulted in a balanced outcome and valuable lessons for the industry moving forward.
In November 2015, Ofwat announced its decision to move Bristol Water from the "targeted" to the "prescribed" category on its company monitoring framework. This is a new framework that is used to challenge all companies to provide robust information for customers and stakeholders that they can have confidence in.
The move carries an increased level of prescription, where Ofwat prescribes the assurance requirements, there is an additional requirement to publish assurance plans in advance of reporting and another to incorporate independent external assurance for areas of reporting identified as being of most significance or are of greatest risk for customers. This relates specifically to assurance of forecast data in relation to ensuring the company has adequate financial resources and facilities, and management resources to carry out its regulated activities.
We have reflected on the PR14 process and obtained feedback from our stakeholders. We have publicly stated our commitment to implement key recommendations for PR19, and are working with all our stakeholders to get the best outcome possible for our customers. In particular, we are working constructively with Ofwat at a time when they are keeping a close watch on our ability to meet the challenges the determination has set.
During the year we have responded quickly and met these challenges head on. We have implemented structural and operational changes, including a new Operating Model, which will help position the company to perform well during AMP6 and beyond, and under which we are already seeing benefits, as demonstrated by our good performance this year.
We understand why Ofwat has moved us to prescribed status. We are working on re-building relationships going forward and implementing a plan that will move us out of this category, working with all our stakeholders to achieve this as soon as possible.
Our customer service performance is measured through feedback and surveys, and Ofwat uses the Service Incentive Mechanism ("SIM") to benchmark customer service across the industry.
This year our SIM (Ofwat's measurement of customer satisfaction) improved from 80/100 to 85.1/100. The improvements have been seen across all areas of the SIM, including the satisfaction survey and the complaint levels. We have listened to the complaints and causes for dissatisfaction and amended company policies to improve the service in the areas that matter the most for our customers.
We continue to put customers at the heart of our strategy and operations and regularly obtain customers' views on what we do, how we perform and where we need to improve, and this improved score shows our efforts are making a measurable difference.
We are doing more than ever to help people who are struggling to pay their bills and continue to work closely with debt agencies and community support groups to promote our assist schemes and social tariffs, increasing the number of beneficiaries by 27% to 9,532 households this last year. We have introduced a new tariff in April 2016 for customers in receipt of pension credit, giving them a 20% reduction off their water bill. We have been doing a lot of work around vulnerability, recognising this is a key contributor to ability to pay, and have become a dementia-friendly business, as well as introducing new Braille ID cards.
From listening to the views of our customers we have introduced more communication channels this year. We now use SMS messages to inform customers when they have unplanned disruption to their water supply. We also use twitter and the number of followers is increasing every day. In addition to this we have increased our customer feedback channels with a new customer feedback card and the introduction of a customer online panel called 'Let us know'.
AMP5 saw a period of major investment in our network – at £288.9 million this was one of the biggest capital programmes in Bristol Water's history. This has delivered measurable improvements in water quality and security of supply for hundreds of thousands of customers.
In AMP6 (2015-2020) we will build on this. We have introduced efficiencies through applying our risk based process to AMP6 schemes. The Southern Resilience Scheme is our biggest infrastructure project costing £27 million and improving security of supply to over 280,000 customers in our southern region. This new network will give us increased flexibility and will allow us to move water from our northern sources into our southern region in the event of a loss of supply, or water back up to Bristol if we lose our northern supply. It will also help us meet the increase in demand for water over the coming years.
In 2015/16 the design phase was completed and work will start on the 30KM pipe, an upgrade at Cheddar pumping station and a new service reservoir at Hutton in summer 2016, with a completion date of 2018.
During 2015/16 we also carried out preparatory work on a £3million project to renovate the Strategic Water Main from Victoria Pumping Station to Greenbank. This main services households and businesses across Cotham, St Paul's, Lawrence Hill and Easton. Parts of our network are over 150 years old and customers in this area have reported a number of discoloured water incidents over the past few years, and this upgrade of the main is necessary to improve this.
Elsewhere we have replaced nearly 5km of distribution mains that were in poor condition and we continue to roll out this targeted programme of work to reduce bursts and improve water quality. We have also launched a five year lead replacement project to ensure that the new lead standard is being met at infant and primary schools across our supply area.
Work on a new reservoir and an upgrade to the pumping station at Dundry was completed in 2015, with improved capacity to supply the local population long into the future. The new 1.1ML reservoir replaces a 1950's structure and the landmark telecommunication tower is also due to be replaced with a modern structure.
As well as these infrastructure projects, we have also been upgrading our treatment works with UV screening and this installation programme is now in its final stages at Barrow. We have also been working on optimisation projects at all our sites to help improve efficiency and save costs.
We also completed a three-year head office refurbishment, bringing an iconic 1960's building bang up to date in technology and energy management and move all our office staff under one roof, which has resulted in a significant improvement in our ways of working together.
Our performance can be hugely influenced by the weather and the seasons and increasingly by extreme weather events that make things unpredictable and challenge our ability to have a consistent response.
This was a wet year; rainfall was 1025mm for the Mendip reservoir catchments, approximately 10% higher than the long term average for the area. Reservoir inflows dropped off at the end of the recharge period around March 2015, and we saw a fall in reservoir levels along their control curve into the summer. However, a relatively wet summer followed which saw an unusual rise in reservoir levels from August onwards. As a result, total reservoir volume was maintained at a higher level during the summer and full recharge was achieved on target at the end of January 2016.
As with 2014-15, the high levels of our reservoir storage meant that we were able to maximise the use of water from Mendip reservoirs throughout the year. This meant that we did not need to use water from the River Severn to support our southern supply zones,which reduced our pumping and treatment costs.
On average, we supplied 266 million litres per day (Ml/d) in 2015-16, to a total population of 1.2million household and non-household customers. The total water into supply was 1 Ml/d less than the previous year (267 Ml/d 2014-15). This fall was due to a 1 Ml/d reduction in leakage to 44 Ml/d, which is well below our AMP6 target of 48 Ml/d.
For the 19th year running, we have beaten our leakage targets by continuing with our proactive approach using a range of techniques and resources. With over 6,600km of mains to maintain, we continually review the leakage reduction activity in light of the costs and benefits of such work. We believe we are at the forefront of innovation in responsive district metering that enables us to detect leaks and use the distribution network more efficiently.
However, we want to improve further and by 2020 aim to reduce leakage to 16% of water produced (compared to over 20% in 2009/10). By 2040, we have set a target of leakage reduction so that only 10% of the volume of water put into the distribution system is lost through leakage.
The quality of drinking water we supply is already very high with 99.94% of legally required samples meeting UK and European Union standards, slightly up from last year. Another positive trend is the reduction in the number of negative water quality contacts we have received over the last few years, with 2,329 in 2015 falling below our target of 2,422. This is largely attributable to our AMP5 trunk mains relining/replacement programme and the associated systematic flushing of the distribution mains supplied from these trunk mains. Consequently, we are getting a cleaner network and a much reduced risk of discoloured water contacts when there is any disturbance to flows caused by burst mains.
The improvements in our SIM performance has been seen across all areas of the SIM. But this year we are disappointed to miss our target of 'unplanned customer minutes lost' per property, coming in at 15.4 minutes when our target was 13.4 minutes. This figure is largely due to burst mains in Keynsham, Bedminster Down, Evercreech, Cotham and Stapleton, which unfortunately affected several thousand customers. This means that five bursts represent 75% of the total per customer minutes lost during the year. We provided an alternative water supply in response to the Keynsham and Bedminster bursts and had very good feedback about our efforts looking after vulnerable and elderly customers and the level of service we provided at our water hubs. We are using the lessons learnt to improve our plans to manage them and have a better response to our customers and the company is fully committed to meet this target in the remaining years of the AMP.
From April 2017 all non household customers in England will be able to choose who supplies their water and waste water services. In the new Open Water market, businesses will buy from retailers, who in turn will buy services from the existing water and sewerage companies who will act as wholesalers.
The reforms to the market are being governed nationally through the Open Water programme, which must deliver the requirements needed for the market to successfully open in April 2017, including market design, codes, central systems, and contracts to enable the full non-household business retail market to function.
This work is currently underway and includes developing the market rules, identifying the data necessary for the market to function and, procuring and building the central IT systems required for the market to work. All of this work has involved significant cooperation and engagement between Open Water, the incumbent companies and potential new entrants. Bristol Water has been, and will continue to be, heavily engaged in the Open Water Programme and its development to ensure we are ready for market opening.
Over the past year, we have made strong progress on various local aspects of the Open Water programme. With our programme governance in place, we have made positive progress towards market opening by preparing our processes, systems and people ahead of some of the key milestones that lie ahead.
As our preparation for market opening continues, we have established an external Assurance Partner to work with the programme and ensure that Bristol Water are fully equipped for the challenges that the new market will create. Assurance on our local activity is being done in line with assurance activities with all English water companies, MOSL, Ofwat and Defra to ensure all parties have the correct readiness condition ahead of full market opening.
Water2business is a new non-household retail function owned by a parent company of Bristol Water plc. This structure has been put in place to ensure full segregation of the wholesale business from retail business for non-household customers when the market opens. water2business has been following similar people, system, process preparation activities and is also engaged with similar assurance activity to our wholesale business. Both the wholesale programme team and the retail programme team are working well together to ensure future challenges to get into the full market are managed effectively. Bristol Water plc will be exiting the retail non-household market, and our retail non-household customers will be transferred to water2business.
Bristol Water plc will continue to operate both wholesale and retail for household customers.
As a key strategic programme, we will continue to work closely with the central programme, internal business teams and key stakeholders to ensure we are in the strongest position possible ahead of full market opening.
From an environmental perspective, we have set ourselves long-term targets for environmental performance and all our reservoirs remain at the highest assessment levels for Sites of Special Scientific Interest.
We have launched a pioneering initiative called the Biodiversity Index which enables us to measure the impact of our projects on natural habitats - and helps demonstrate a net gain to wildlife and biodiversity following these projects. In 2015, environmental focus sharpened even more as we embraced Bristol's status of European Green Capital 2015 and among our many projects to support this initiative we developed the world's first live laboratory at one of UWE's student villages, using the students as subjects to test how they use water and to assess the impact of water saving ideas.
The directors present their Strategic Report on the company for the year ended 31 March 2016.
This year Bristol Water is 170 years old and while the world has changed beyond recognition in that time, our business ethos remains the same: customers are at the heart of everything we do. We understand how important a reliable and clean water supply is to everyday life; we are acutely aware of the need to make the right decisions to provide an affordable, high-quality service into the future. After all, we are customers too.
Through our passion to deliver a great service, we place the customer at the centre of our decisionmaking. We listen to their views and adapt our approach with the intention to meet their everincreasing expectations.
We supply water to approximately 1.2 million people across an area of almost 2,400 square kilometres, from Tetbury in the north to Street in the south and from Weston-super-Mare in the west to Frome in the east. Our operations include the abstraction, storage, treatment and distribution of water to homes, businesses and other premises.
We are one of 17 companies in the UK who distribute water and Bristol is one of seven that focuses exclusively on water, not wastewater. In our supply area, wastewater services are provided by Wessex Water and to make it easier for our customers and provide an efficient service, we set up Bristol Wessex Billing Services Limited (BWBSL) together so we only send one bill.
According to the latest projections from the Office of National Statistics (ONS), the population we supply will increase from 1.2 million to nearly 1.5 million by 2040. Over the next 10 years, the ONS have calculated the population will increase by 7.9% in our supply area. This is comparable to the much publicised high-growth rates in the South East of England of 7.8% over the same period and is 15% higher than the regional average for the South West overall. The rate of house building is also expected to increase to accommodate the rising population.
In 2015/16 we supplied water to an additional 6,000 new households and 200 businesses. We are committed to fulfilling the growing demand and delivering a reliable supply and high level of service that our customers have told us they want. We aim to outperform our regulatory commitments through a business model that helps generate significant efficiencies.
Our vision "to meet customers' expectations by providing an outstanding water service in a sustainable and affordable way" means that we have to:
Water companies in England and Wales must comply with the economic and environmental regulatory frameworks. Ofwat is the water sector's economic regulator and competition authority. Its main duties in respect of water supply are to:
Other regulatory bodies include:
This regulatory period (2015-20) is known as Asset Management Plan Period 6 ("AMP6") and the price that water companies can charge their customers is set through Ofwat's price review process (known as PR14). Bristol Water asked Ofwat to refer our Price Review to the Competition and Markets Authority and a new Final Determination was delivered in October 2015. This set prices significantly lower for this AMP than our proposed business plan, with average household bills reduced by 16%.
Retail competition will be introduced for all non-household customers in April 2017. To support the expansion of retail competition, Ofwat set separate price controls for wholesale services, with different retail controls for household and non-household customers. The non-household retail price controls are designed to protect customers for the two years ahead of market opening and to provide backstop protection and a comparison point for customers once the market is open. A price review process called PR16 will formalise the opening of the Retail Non-household market.
Planning for the next AMP Period 7 (PR19) is now underway. Our Challenge Panel has a new Chair, Peaches Golding OBE, who brings a wealth of expertise and experience to her role. Customer Challenge Groups/Panels hold water companies to account on current performance and are used to influence business planning and provide on-going assurance to the industry regulator, Ofwat. The independent Chair holds a unique position of trust between the people and businesses supplied by Bristol Water and has a remit to constructively challenge and influence the company on behalf of customers, reflecting their views and interests.
Our 25-year strategy 'Water in the Future' sets out our long-term company vision. To help deliver this vision we developed six strategic aims, which were tested through customer research to identify key areas of performance called 'Outcomes', and measures of success were developed.
In 2014 we published our Water Resources Management Plan (WRMP) 2014-2040, which sets out how we intend to meet customers' water needs over the next 25 years. Over this period we face a number of pressures from population growth and climate change but we are fully committed to fulfilling our customers' growing water demands.
The population we serve is expected to increase by approximately 25% and the number of properties by approximately 30%, the latter figure due largely to an increase in single occupancy households. It is anticipated that there will also be growth in the number of businesses we serve to support this growing population. This all adds to the demand for water and increases the risk of shortages.
Climate change is expected to bring greater variability in the weather with droughts and wet weather becoming more frequent and severe. If drier summers become more common, as predicted, then water availability will be reduced. Conversely there will also be an increased risk of flooding as the winters become wetter, which may in turn threaten the quality of our water. Our WRMP sets how we propose to manage these challenges while continuing to provide affordable, secure and safe water supplies, and work has already started on the new plan as we need to be responsive to all these factors.
Bristol Water has one of the lowest leakage levels in the industry in the UK, performing within the top four of the 18 companies in England and Wales using the KPI of total leakage in litres/property/day. However, as set out in our Water Resources Management Plan, we want to improve further and by 2020 aim to reduce leakage to 16% of water produced (compared to over 20% in 2009/10).
From April 2017 all non-household customers in England will be able to choose who supplies their water and wastewater services. In the new Open Water market, businesses will buy from retailers, who in turn will buy services from the existing water companies who will act as wholesalers.
The Water Act 2014 established the framework to create the Open Water market and these reforms will extend competition by increasing choice for existing customers and making the market more attractive to new entrants. Ofwat believes that more competition in the industry will improve levels of service, ensure more tailored services and prices, and drive sustainable approaches to managing water. Competition is also being seen as a major driver of innovation in the industry.
The reforms to the market are being governed nationally through the Open Water programme, which must deliver the requirements needed for the market to successfully open in April 2017, including market design, codes, central systems and contracts to enable the full non-domestic business retail market to function.
This work is currently underway and includes developing the market rules, identifying the data necessary for the market to function, and procuring and building the central IT systems required for the market to work. All of this work has involved significant cooperation and engagement between Open Water, the incumbent companies and potential new entrants. Bristol Water has been, and will continue to be, heavily engaged in the Open Water Programme and its development to ensure we are ready for market opening. At the time of writing this report, with 10 months before market opening, we have met all our business readiness and assurance milestones and launched our internal engagement project titled Ready for Retail.
In spring 2000, Bristol Water and Wessex Water, as two of the major players in the water supply market, came together to find a more efficient way to service their customer base. For the first time business customers were given access to account managers, specialist billing teams and a range of bespoke services to compliment what were already exceptional operational standards.
The overriding objective was to make the water element of any business as simple and as cost effective as possible. Our efforts over the years have been rewarded with outstanding ratings from Ofwat.
In 2015 we separated this team to create a dedicated business services division called water2business with the same dedicated account managers, specialist billing teams and range of customised services to compliment what were already exceptional operational standards.
With the opening of the non-household market in April 2017, water2business as a national retailer has the opportunity to take its high levels of service to a national audience.
Existing customers will continue to benefit from the individual knowledge of the two parents in the joint venture and the relationship they already have with our water2business team. They will also have the assurance that competition will continue to incentivise us to keep prices down, add value to the service and maintain the highest standards of service.
The Government are expecting Ofwat to introduce competition to the domestic market in future, but for now household customers are not affected.
We set tough targets in order to improve our service and continually measure our performance. We have met some of these tough targets and overall the standards we have achieved this year have been high, as reflected in the most important of all indicators – customer satisfaction and value for money.
The following pages describe these measures and our performance against targets.
| Aim | Outcome | Performance Measure/KPI |
Units | Annual Target (Performance Commitment) |
2015/16 | 2014/15 |
|---|---|---|---|---|---|---|
| Percentage customers in w ater poverty1 |
% | 2.0 | 0.4 | 2.5 | ||
| Affordable Bills | Percentage of customers on social tariffs2 |
% | 1.6 | 1.7 | 1.5 | |
| Responsive to | Satisfied | Ofw at measurement of customer service (SIM) 3 |
Score/100 | 853 | 85.1 | 80 |
| customers | customers | General satisfaction survey4 |
% | 93 | 83 | 69 |
| Value for money rating5 |
% | 71 | 78.0 | 73.0 | ||
| Easy to contact | Ease of contact from surveys |
% | 96.3 | 93.1 | 95.2 | |
| Bills are accurate and easy to understand |
Negative billing contacts6 |
No. | 2,480 | 2,301 | 2,612 | |
| Excellent quality | Safe drinking w ater |
DWI standards Mean Zonal Compliance |
% | 99.96 | 99.94 | 99.92 |
| Water is good to drink |
Negative w ater quality contacts |
No. | 2,422 | 2,329 | 2,576 | |
| Unplanned customer minutes lost |
Minutes per customer |
13.4 | 15.49 | 152.4 | ||
| Highly reliable | Reliable supply | Asset reliability (below ground assets) |
Improving/ Stable/ Marginal/ Deteriorating |
Stable | Stable | Stable |
| Asset reliability (above ground assets) |
Improving/ Stable/ Marginal/ Deteriorating |
Stable | Stable | Stable | ||
| Resilient supply | Population at risk from asset failure due to an extreme event7 |
Population | 288,589 | 288,589 | 288,589 | |
| Sufficient supply | Security of supply index |
No. | 100 | 100 | 100 | |
| Hosepipe ban frequency |
Return period (1 in 'X' years) |
15 | 15 | 15 | ||
| Efficient use of resources by the |
Leakage | Ml/day | 48.0 | 44.2 | 45.1 | |
| Company | Pumping efficiency | % | 55 | 56.4 | 55.6 | |
| Efficient use of w ater by |
Per capita consumption |
litre/head/day | 145.4 | 141.1 | 143.0 | |
| customers | Domestic Meter penetration8 |
% | 50.4 | 47.3 | 45.8 | |
| Environmentally | Total carbon emissions |
Tonnes CO2 Kg/person |
32 | 35.3 | 38.5 | |
| sustainable | Sustainable environmental |
Raw w ater quality of sources9 |
Improving/ Stable/ Marginal/ Deteriorating |
Deteriorating | Deteriorating | Deteriorating |
| impact | Biodiversity Index10 | Improving/ Stable/ Marginal/ Deteriorating |
Improving | 17684.59 | 17613.21 | |
| Environmental Discharge Compliance |
% | 100 | 96.1 | 99 |
| Safe w orking practices |
No. of accidents reportable to Health and Safety Executive ("HSE") 11 |
No. | Nil | 1 | 1 | |
|---|---|---|---|---|---|---|
| Best people right culture |
Skilled and motivated w orkforce |
Staff satisfaction survey12 | % of respondents w ho like their job |
Maintain high level [90%] |
No survey. |
No survey |
| Investor confidence |
Credit rating | Moody's rating | Baa1 | Baa1 | Baa1 (negative w atch) |
|
| Sustainable business |
Fair return to investors |
Return on Regulated Equity13 | % | 5.8 | 4.15 | N/A |
| Highly | Customer survey14 | % | 83 | 75 | 67 | |
| reputable | Stakeholder survey | % | 53 | 55 | 55 |
1 Customers whose water bill represents >2% of their disposable income, based on population analysis of our billing database.
2 % billed households on our Assist or WaterSure+ tariffs. From April 2016 we have also introduced a new social tariff for customers who receive Pension Credits
3 Our SIM target in the Ofwat determination for AMP6 is top 5 in the industry, and 85 is our current estimate of the score required to achieve a top 5 ranking.
4 Based upon the results of our annual survey of 500 household customers selected at random from the total customer base, who were asked how they rate our service.
We set out to provide outstanding water services in a sustainable and affordable way to meet and exceed our customers' expectations.
We have a number of schemes in place to make sure we help customers who find it hard to pay their water charges. We monitor a percentage of our household customers we classify as experiencing 'water poverty' (those who spend more than 2% of their net income on paying their water charges) and offer advice, assistance schemes and capped tariffs, known as 'social tariffs'.
The number of customers receiving assistance through these measures has increased by 3.4% since last year. At the moment, 10,920 households are currently benefitting from our 'Restart' and 'Restart Plus' schemes and 'Assist' tariff, which help customers who are in financial difficulty get back on track with their water bill.
1,831 households are on our WaterSure Plus metered tariff, which is for customers in receipt of certain benefits and are defined by the government as 'vulnerable', either because they have a medical condition or a large family.
We are amongst the first in the industry to introduce a Pension Credit scheme that gives a 20 per cent discount on water bills to Bristol Water customers who live in a household where all members over the age of 18 are in receipt of Pension Credit.
Elderly and disabled customers, those undergoing home dialysis or have priority needs can also register for Customer Care Plus which gives access to a range of special services free of charge.
We know that water debt is seldom isolated and we work to provide independent debt advice, working closely with the agencies that provide these services. In 2015/16 we donated £50,000 to debt advice agencies across our supply area to support them in providing free advice to our customers.
We use the following five indicators to assess whether our customers are satisfied with the service we provide:
Ofwat uses the SIM to compare the performance of the water industry in England and Wales in respect of the service it provides to customers. The SIM comprises a composite quantitative measure relating to the number of calls received because something has gone wrong, the number of written complaints and escalated written complaints, and a qualitative measure in the form of a customer satisfaction survey.
Our SIM score in 2015/16 is 85.1; our industry ranking will be known later in July but the indicators based on the survey ranking are that we will improve from last year's position. This year we have introduced the use of sending SMS messages to customers to help inform them of unplanned bursts and alternative water supply. This has resulted in a reduction of unwanted calls and in particular a reduction in contacts regarding discolouration.
In addition, we survey customers every month using the same independent research agency that Ofwat uses to get feedback and to obtain a consumer rating of the value for money we provide. In 2015/16, 77.8% of consumers in these surveys rated our service as providing good value for money – up from 73% last year.
We have continued working with a second independent consumer research agency on our annual tracking survey of 1,000 household consumers, selected at random from across our supply region, to find out how they rate our service. In March 2016 83% of respondents rated our service as excellent, very good or good, compared to 69% the year before. The increase and high level in satisfaction is encouraging – however, it is still less than our target of 93% and we are tackling this by improving and increasing feedback opportunities.
In 2015/16, 77.8% of consumers in these surveys rated our service as providing good value for money, a 4.8% increase on last year.
In 2015, we reviewed our customer feedback channels by redesigning our feedback cards and by establishing a customer online panel called 'Let us know' with over 2,000 members. The first survey had a response rate of over 70%. Our intention is that this feedback will help us gather better insight to understand how we can improve customer satisfaction further.
We intend to supplement this with the introduction of real time customer feedback and bespoke customer satisfaction surveys for our Developers, Self-Lay organisations and our recreational customers.
While we understand the importance of providing a range of channels through which customers can contact us, telephone is still the preferred and primary method, so it is important that we monitor the satisfaction of this service.
In 2015/16, 93.1% of consumers surveyed considered that it was easy to contact us by phone – a fall of 2.1% from the previous year. The dissatisfaction is often caused by customers not being clear on the number they need to call for their enquiry. We are reviewing our literature and website to help make this easier for customers to understand.
In 2015/16, we introduced more proactive communications with the use of Twitter and text messaging. In 2016/17, we plan to extend this to use text messaging for reminders of appointments and also the introduction of web chat. We will continue to seek our customer's views on the channels we are using in order to meet their needs for a responsive service.
Our customers want bills that are accurate, clearly laid out and easy to understand so we monitor this by measuring the number of 'unwanted' billing contacts we receive. In 2015/16, this was 2,301, a reduction of 311 from 2014/15. Unwanted is the term used by Ofwat in its quantitative SIM measures for calls which the customer would prefer not to make, in the sense that they are dissatisfied because they are experiencing a problem or concern, are making a repeat or chase call, or want to complain.
Our water is tested against some of the most rigorous standards in the world and consistently achieves exceptionally high compliance.
Topmost in our aims is to supply our customers with clear water and complying with stringent regulatory standards. We do this through our Drinking Water Safety Plan (DWSP) approach, which helps us to reduce and manage any risks to water quality.
Our Water Quality team collects samples 365 days a year from across our 2,400 square kilometre supply zone. The sampling schedule is aligned to a sophisticated computer-controlled programme so that water quality is checked right from source to customers' taps. This is evidenced by our water quality results that are measured by DWI Standards: Mean Zonal Compliance (MZC).
The standard on the level of lead in the water supply was tightened in December 2013 from 25 to 10 micrograms per litre. The table below demonstrates the impact of this on compliance in AMP5.
| Calendar year | Mean Zonal Compliance (Lead standard 25 µg/l) |
Mean Zonal Compliance (Lead standard 10 µg/l) |
|---|---|---|
| 2010 | 99.96% | 99.94% |
| 2011 | 99.96% | 99.91% |
| 2012 | 99.99% | 99.97% |
| 2013 | 99.97% | 99.95% |
| 2014 | 99.95% | 99.92% |
| 2015 | 99.95% | 99.94% |
| Average | 99.96% | 99.94% |
During 2015 our random compliance sampling at customers' properties identified two nickel failures (due to nickel leaching from chrome plating on customer taps, not our own supply pipe) and three taste and odour failures associated with other internal plumbing deficiencies. Although these failures were solely attributable to customers' plumbing issues, they had the effect of reducing our MZC figure from 99.97% down to 99.94%.
In 2015, one compliance sample out of the 3,733 taken at treatment works was found to contain coliforms. This equates to a non-compliance of 0.03%.
Routine compliance samples for bacteriological analysis are taken at the outlet of each of our treated water service reservoirs every week. Out of the 8,238 samples taken, two were found to contain coliforms. This equates to a compliance of 99.98%.
During 2015, no DWI Enforcements Orders were served associated with bacteriological quality at treatment works.
It's vitally important that our water not only meets stringent standards but is also good to drink. We measure our performance by the number of negative contacts about the quality of water our customer services department receives.
Our Negative Water Quality Contacts (NWQC) measure relates to the number of customer contacts we receive each calendar year about taste, odour and appearance. It is consistent with our reporting to the DWI in that it excludes contacts associated with reportable events.
We received 2,329 NWQCs during 2015, which is better than our ODI target of 2,422.
As shown in the chart above, there has been a general reduction in the number of contacts we have received over the last few years. We have now started to see the benefit of our AMP5 trunk mains relining/replacement programme and the associated systematic flushing of the distribution mains supplied from these trunk mains. The renovation of the trunk mains reduced the amount of corrosion debris seeding our network and the associated systematic flushing programme has removed historic corrosion debris. Consequently, we are getting a cleaner network and a much-reduced risk of discoloured water contacts when there is any disturbance to flows caused by burst mains.
We must offer a reliable and resilient service to our customers who depend on us to supply water without restriction or interruption.
Our performance for reliable supply is assessed on the number of unplanned minutes without supply each property experiences, and on our capacity to avoid a service failure of our assets, both above ground (non-infrastructure assets) and below ground (infrastructure assets).
This is one of our key targets because the impact on supply interruptions is most keenly felt by our customers. Despite the fact that we receive high levels of satisfaction and praise from customers in how we manage bursts, we are highly incentivised to reduce the time people are without water and are focusing on initiatives to improve this score.
For 2015/16 we recorded a total of 15.5 minutes lost per property as a result of 430 bursts. Although this is above our target of 13.2 minutes per property, 75% of the minutes lost relate to five incidents that took more than 12 hours for supplies to be fully restored. However, at 756 the actual number of bursts is 23% less than forecast and only 60% of these have resulted in no water events, which shows we are managing a large proportion of bursts through live repairs and rezoning.
We have continued to deliver performance, maintaining our asset health measure of asset reliability as stable for both above and below ground asset groups.
A resilient supply means that we are able to cope with extreme or unusual events, and this is measured by the number of people at risk from the failure of a single source asset (in supply areas of more than 25,000 consumers).
Improving resilience was one of the key outputs for the capital investment programme of AMP5 and continues to be a key output in AMP6. As part of our AMP6 programme, we are further reducing the number of customers at risk from 288,589 to 9,063, by undertaking a major scheme to construct 30 kilometres of mainly 700-millimetre diameter new mains to reinforce and support our southern supply area. The scheme has been designed and planning is in hand, with construction scheduled to commence in September 2016.
One of our customers' most important requirements is an unrestricted water supply. Our performance of this is measured by supply restrictions during periods of water shortages, and Ofwat's Security of Supply Index (SOSI). SOSI is the ratio of water available, plus regulatory headroom, to the forecasted dry weather water demand for the outturn year. If a score of less than 100% is calculated, this would indicate that there could have been a higher risk of water use restrictions for our customers that year. We are pleased that for 2015-16 our SOSI value was 100%, indicating sufficient supply with no restrictions. It has been 25 years since we have had a hose pipe ban.
We take environmental responsibility seriously and make efficient use of our resources to both assist customers in becoming water efficient and minimise the environmental impact of our business operations.
There are multiple benefits to managing leakage effectively including reducing the risk of having to impose water restrictions if our area experiences sustained periods of dry weather, reducing our impact on the environment by reducing the amount of water we need to abstract, and reducing disruption to customers when making repairs. For AMP6, we have set challenging leakage targets at a level where the overall value of the water lost is balanced against the costs of increased leakage control activity.
Our continued outperformance against these challenging targets is driven by our strong commitment to drive leakage down, and we go into this in greater detail in our report 'war on waste' on page 24. The combination of targeted investment in our network, improved monitoring and control, and our proactive approach to leakage management and leakage reduction initiatives, such as pressure management, continues to see us actively working to reduce leakage levels further.
| 2010/11 | 2011/12 | 2012/13 | 2013/14 | 2014/15 | 2015/16 | |
|---|---|---|---|---|---|---|
| Leakage - million | ||||||
| litres of water per day (ml/d) |
50 | 43 | 42 | 44 | 45 | 45 |
| Ofwat target | 52 | 51 | 50 | 49 | 49 | 47 |
In our ongoing efforts to reduce our energy consumption, reduce costs and improve efficiency our average pump group overall efficiency for units over 40kW rating has improved to 56.4% due to the installation and use of new and more efficient pumping machines. In addition, operational pumping combinations and pump speeds for the large raw water pumping stations are now selected with regard to optimum duty point whenever possible, improving the overall efficiency of our pumping system
We encourage our customers to be more efficient in the way they use water by increasing the number of customers who are billed based on their actual consumption of water. We measure this by meter penetration expressed as a percentage of total number of customers. We also provide water-saving fittings and advice on reducing water consumption to help our customers save water.
Household meter penetration for 2015/16 is 47.3%, up from 45.8% in 2014/15. However, this is lower than our target of 50.4%. We have seen a reduction of approximately 40% in meter optants, where customers request the installation of meters, against the forecast thought to be due to the reduction in bills in 2015. We are continuing with our selective household and non-household metering programmes and will continue to monitor our meter penetration against our AMP6 targets.
We continued to see lower than expected numbers of properties eligible for metering on the change of occupier (large garden) metering programme, but with an increase in the number of surveyors, we installed almost 500 more meters requested by the customers than forecast for 2014/15. In our AMP6 Business Plan we propose to introduce an extended programme of change of occupier metering, with the aim to increase household meter penetration to 66% by 2020 as this is proven to reduce household water consumption.
We have also analysed the effective age at which to replace meters and have found meters are lasting longer than originally planned. Therefore, we are now replacing meters when they are 18 years old having previously replaced at 13 years old. This reflects our new approach of proactively monitoring failure rates to ensure we take optimum decisions.
Average water consumption per customer per day (per capita consumption "PCC") for 2015/16 was 141 litres per person per day which is four litres below the target figure of 145 litres set at PR14.
One key measure of our environmental impact is our carbon emissions. We use almost 80,000,000 kilowatt hours of electrical energy to treat and distribute water and this accounts for almost 90% of our total carbon footprint. We can play our part in reducing the carbon emissions associated with energy use by improved pumping efficiency; reducing leakage and helping our customers use water more efficiently. This, together with improved energy efficiency of our buildings and vehicle fleet, and development of renewable energy sources, enables us to manage those aspects of our carbon footprint that we can control.
Our carbon footprint has reduced slightly from last year's figure because the carbon footprint of each kWh of electrical energy we purchase (known as the "grid average") has reduced from the previous year. However, looking at the longer-term trend of the grid average figure, we do not anticipate that this is likely to follow the Government projections given in 2014 and we will recalculate our projected future carbon footprint accordingly.
We take part in the Carbon Reduction Commitment, a UK initiative for large energy users to cut their carbon footprint.
Electrical energy consumption marginally reduced by 1%, bringing the total down to to 78,243MWh in 2015/16 compared with 79,036MWh in 2014/15. The reduction reflects power saving initiatives across the company, particularly at Purton our largest treatment works, and water pumping at our key raw water reservoirs.
Our ongoing energy efficiency programme continues to work on improving management of water sources and pumping. Water Efficiency measures have saved 115,000 kg CO2, due to our promotional activities to help customers save water, which helped our customers to reduce their water by a total of over two hundred million litres during the year.
Total annual quantity of emissions (in tonnes of CO2 equivalent) resulting from the combustion of fuel and the operation of any facility where we burn diesel or heating oil (direct scope 1 emissions) was 1,554 tonnes.
We use the Standard Water UK calculation methodology to calculate our carbon emissions. Figures for the current and previous years are:
Renewable energy: Our Purton solar photovoltaic system has continued its successful operation and in the last twelve months has produced 1,111,798 kWh of sustainable electricity, used at our treatment works at Purton. This has resulted in a carbon saving of over half a million kilogrammes of CO2 in 2015/2016
The quality of our water sources, particularly in the Mendip lakes, can be impacted by deterioration due to nutrients and sediment that can enter the watercourses from land and activities in the catchment area of the source. We are now working with local landholders and farmers to identify where this can be addressed through partnership programmes with key stakeholders - and we have formed an organisation called the Mendip Lakes Partnership to work together on these issues. The partners involved include Natural England, the Environment Agency, Wessex Water, Avon Wildlife Trust and the Farming & Wildlife Advisory Group; and we have held a range of successful farm engagement and training sessions with landholders in the key catchment areas.
This is a new approach to protecting the environment that involves measuring the value and benefit of our own sites and using the Biodiversity Index to quantify the impact and benefit of our actions on the broader environment. Last year saw the new method put into practice with an increase of our BI from 17,684.59 to 17,613.21. This calculation is the first of its kind to be generated and is therefore incomparable, but can be used to measure how we are performing in terms of habitat protection and enhancement.
An example of the Biodiversity Index in practice was the measurable impact of our hosting of the National Hedgelaying Championships at Chew Valley Lake. The new hedgerows have created important new habitat, and increased the BI by 26.4.
This year we will be applying the Biodiversity Index to the Southern Resilience Scheme. The scheme will be scored before work commences, we will then work with partners, such as Natural England, schools and land owners to create new habitat and improve biodiversity.
This measure is assessed on a calendar year basis and so relates to 2015 performance. We monitor all of our discharges which have been consented by the Environment Agency. Over 95% of the samples we took were fully compliant with the discharge consent conditions. Of the failures recorded nearly one half of them were associated with natural manganese released from a reed bed at Barrow Treatment Works. We are in discussions with the Environment Agency on how best to address this issue.
Our proactive and innovative approach to leakage is continuing to have a positive impact on our performance and maintaining our status in the industry top five for this key regulatory target. This year we have achieved 44.2 mega litres per day which is well below our target of 48ml/d for 2015/16 – our lowest ever target level.
This measure is the amount of water that enters the distribution system but is not delivered to customers because it is lost from either the company's or customers' pipes.
For 2015/16, leakage levels were maintained marginally below the control curve throughout the summer and autumn, and were significantly below the normal average throughout the usually high leakage period in December and January. This was a relatively mild winter, so our Winter Task Force did not need to be fully deployed.
The last two AMPs have seen the greatest improvement in leakage performance and this is largely due to the mains and surface replacement programmes carried out, our pressure control implementation project and a more proactive approach towards leak detection, including using some innovative technology and methods.
In the last year we have replaced nearly 5km of the distribution mains network that was in poor condition and repaired around 3,900 leaks on our system, including approximately 700 burst water mains. In addition to the leaks repaired on our network we also identified in excess of 1,500 leaks on private customer service pipes, providing free or subsidised repair of these private leaks in more than a third of cases.
The Bristol Water area of supply is divided into District Meter Areas (DMAs) and each area is remotely monitored using a variety of telemetry and logger solutions, so that network flow and pressure data is available on a daily basis. This enables Inspectors to hone in on suspected leaks and isolate them so fewer properties are affected.
Our team of 23 Leakage Inspectors have a range of skills and equipment at their disposal. They select the appropriate method of leak location depending on the situation, but the techniques that are predominantly used are isolations (splitting the DMAs into smaller network elements when leakage is suspected), leak noise sounding using listening sticks, and leak pinpointing using analogue and digital correlators.
For this reporting year 97.0 % of all properties are under continual night flow monitoring in 387 District Meter Areas. On average approximately 339 (92.7%) days of valid night flow data was obtained for these areas and used to determine average night flow levels, which enables us to pick up any anomalies early.
On a daily basis we are focused on pressure optimisation and active leakage control and we have shifted from 80% customer detection to 60% - meaning that 40% of leaks are discovered and fixed before any visual signs emerge.
While active leak control is industry standard, we are helping develop advanced network management through a five year collaboration with Imperial College London and Cla-Val. The Dynamic District Meter Area (DDMA) project is being tested in Bristol and is enabling us to monitor and meet water demand across the city by using advanced pressure, flow monitoring and leakage management.
We are continually exploring new ways of improving on current practices and provide a step changes in leakage control, including the use of helium gas to detect leaks.
A vast program of pressure management was implemented under the previous AMP programme, starting in year 2008-09. This scheme involved the investigation, implementation and commissioning of new control valves aiming to reduce background leakage and burst rates.
The outcome of this project resulted in 72 new schemes being introduced, with additional pressure optimisation of existing schemes. Although no new schemes were introduced in 2015/16, further optimisation of the latest schemes was carried out. The current coverage of pressure management covers now almost 60% of the properties in the Bristol Water supply area.
In addition, existing systems are further optimised with ancillary controls systems and pressure management technology (electronic and hydraulic flow modulation of the Pressure Control Valve), as well as a number of advanced pressure management system being trialled this year. In order to maintain the leakage savings and burst reduction achieved through pressure control, an active program of control valve maintenance is on-going with valves undergoing periodic scheduled maintenance.
Having achieved so much in the last two AMPs our targets are now set to help us achieve a more gradual and sustainable drop in leakage levels. This is essential in order for us to deliver an economically viable leakage management programme to benefit the business, our customers and the environment.
Employing the very best people and fostering the right culture within our business is key to our continued success.
We need the best employees in order to achieve our goal to deliver an exceptional customer service and ensuring that our employees remain motivated and skilled in their roles is of paramount importance to us.
Our appraisal process enables all staff to have an opportunity to review their performance and talk about development needs at least twice a year. We have a comprehensive view of all required training in our operational areas and update our systems so that we know what training is expected, when it was completed and when it is next due for all roles.
Our employee engagement surveys are carried out every three years and the next one is due in 2016. Engagement surveys are not a measure of happiness or satisfaction; they gauge employee sentiment around passion for and pride in their work, whether they believe in the vision of the organisation, and if their work is valued and their talents are well utilised. This year the engagement survey will be conducted after a period of major change and we will use the results to highlight areas that require additional focus to restore balance to the workforce, the business and our customers.
Improving communication across the entire business is important to us. Ensuring the workforce feel included and informed of company, industry and market news is a proven motivator. We are reviewing our communication to staff so that we continue to improve this area and also to further improve two-way communications. The weekly 'CEO Update' continues to be successful and provides regular insights into the key issues that the business is facing.
The health and safety of our employees, contractors and members of the public is paramount and we invest in continuous training programmes and safety audits to keep them protected. We operate 24 hours a day every day of the year so there are special welfare needs to consider and we must also ensure all our contractors share our vision.
We continued our internal behavioural safety campaign throughout 2015 to have a positive impact on our accident performance numbers and a number of initiatives have been run to raise awareness among our people. All contractors who work on our sites receive a specific contractor induction supported by a Code of Conduct booklet. We also hold regular health and safety committees with representatives from across the business, where risks and issues are reviewed and appropriate actions agreed. Our continued aim is to reduce reportable accidents to the HSE to a minimum, which means applying a continuous improvement process across the whole company so there is total commitment from all employees and contractors.
Overall Bristol Water is a safe place to work. We have seen a 9% reduction in the number of accidents within our staff and have also seen an improvement in minimising contractor injuries. This will continue to be an area of focus to ensure that longer-term trends are improving and best practice is implemented. In 2015, one accident was reportable under the RIDDOR regulations to the HSE. This accident was an overseven-day injury.
Our workforce must be skilled to deliver the outstanding customer service we expect and meet the new challenges we face as an industry. Talented people are the foundation of our success and we do all we can to care for our staff, to motivate them and develop their many and varied skills. The new operating model has focused attention on developing our staff to take on new roles and also provided an opportunity to attract new talent externally.
Performance is a key focus and is managed through the setting and agreeing of personal objectives that align to our strategy. Regular discussions are held as part of the annual appraisal process to review individual performance and also identify and plan training and development needs that support people to competently deliver their role and develop new skills.
The company systematically provides employees with information on matters of concern to them, consulting them or their representatives regularly, so that their views can be taken into account when making decisions that are likely to affect their interests. Employee involvement in the company is encouraged, as achieving a common awareness on the part of all employees of the financial and economic factors affecting the company plays a major role in maintaining it. To encourage employee involvement, we also carry out employee engagement surveys.
As an inclusive employer, we promote equality and inclusion throughout our people policies, procedures and practices. We are committed to employment policies, which follow best prac tice, based on equal opportunities for all employees, irrespective of sex, race, colour, disability or marital status. The company gives full and fair consideration to applications for employment from disabled persons, having regard to their particular aptitudes and abilities. Appropriate arrangements are made for the continued employment and training, career development and promotion of disabled employees. If members of staff become disabled the company continues employment, either in the same or an alternative position, with appropriate retraining being given if necessary.
During the year, we implemented a new target operating model that ensures Bristol Water is able to meet the changing requirements that the water industry faces, including the move to a TOTEX environment and better asset management practices. Work on this started in 2014 and it represents the continuous improvement culture that we need to adopt.
We are still implementing the new structure, which will result in an overall reduction in staff from 527 to 453. The reduction has been achieved through a combination of voluntary leavers and redundancies, and a significant number of staff have changed roles. The most affected teams have been operational, they have been split in order to achieve the objectives stated above. We have worked with the unions through these significant changes. We value our relationship with the unions and their help in shaping our choices.
A transition of this scale has been challenging but has enabled the company to move forward with clearer accountabilities and a more efficient operating model that allows the business to focus on the key business drivers. It has been challenging for staff, but we are already seeing benefits for the business and customers, as demonstrated by our good performance this year.
We need to spend customers' and investors' money efficiently and wisely to retain investor confidence, maintain returns in line with the expectations of the financial markets, delivering improved services and keep water bills affordable.
In 2014/15 we launched Project Channel, a business efficiency programme that instigated a major restructure to help us create a leaner operating model better targeted to meet the demands of the modern water sector. During this first year:
We are increasing overall efficiency to improve our management and delivery of water services to our customers.
We consider that the longevity of our business can only be maintained if we remain a highly reputable company with our customers, regulators and other key stakeholders, and to maintain their confidence in our ability to deliver for them.
More detailed information on our financial performance follows in the next section of this report.
We use effective financial management and open communication to maintain investor confidence in order that we can secure funds to invest in the business to deliver our long-term strategy. We have maintained better than the minimum investment grade rating required under our licence. Our rating with Moody's is Baa1.
The company's financial performance in the year was impacted by lower bills, driven by the cost allowance from Ofwat's Final Determination. The CMA's determination improved revenue prospects for future years, but reduced Bristol Water's planned scope of expenditure and increased the level of efficiencies we had assumed. We have plans in place to meet these additional challenges and have taken significant steps in the year to achieve our targets. In order to provide a stable platform for the business to deliver these changes, our Shareholders and Board followed a prudent funding strategy and did not pay dividends to our ultimate shareholders during the year.
In November 2015, following the CMA redetermination, Ofwat announced its decision to move Bristol Water from the "targeted" to the "prescribed" category on its company monitoring framework. This move, which was specifically related to assurance of forecast data, allows the regulator to more closely monitor the company to ensure it acts in a manner best calculated to ensure that it has adequate financial resources and facilities, and management resources to carry out its regulated activities.
We have since provided the requested assurances in relation to compliance with Licence Condition F6A1, s.37 of the Water Industry Act 1991 (as amended) and our other statutory and licence obligations. In addition, we have developed a comprehensive plan for providing the required assurance information to Ofwat.
Ofwat have received from us the following documentation: a Risk and Compliance Statement approved by our Board; an Overview of our Business Plan for AMP6; Bristol Water's consultation on strengths, risks and weaknesses of information; and a Summary of our Draft Assurance Plan. These documents summarise our commitment to deliver the performance outcomes for our customers and meet our wider obligations and set out the foundations of our confidence in our ability to meet these commitments.
We are now working constructively with Ofwat to demonstrate that our customer commitments and obligations will be met in the short and the long term.
We recognise that it is essential for every business to build and maintain a good reputation with its customers and other stakeholders. For this reason we seek and track the views of our customers and a range of other stakeholders on an annual basis.
Through our annual tracking research, carried out by independent consumer researchers, we obtain the views of 500 household customers selected at random from our supply area each year. Respondents are asked to rate our reputation.
In the annual survey conducted in April 2016, 75% of respondents felt that our reputation was good or very good, compared with 67% the year before.
Other measures we have introduced include a monthly reputation tracker from customers who have been in contact with us. We have seen a steady improvement in this score in the six months since we introduced this question, starting with 3.93 (out of a maximum 5) in September 2015 and rising to 4.05 in March 2016. These figures are based on customers rating our reputation as very good or good.
In order to obtain the views of other stakeholders we annually survey a randomly selected group of people including MPs, local authority leaders, large business users, regulators and a range of partner organisations. We have traditionally carried out in-depth interviews with a sample of between 30 to 50 key stakeholders, who are asked their views on how well we perform in a number of key areas.
For 2015/16 we have continued to conduct in-depth interviews (35 in total) but in addition have carried out a more robust online survey, mainly targeted at business customers, that received 271 responses. Of 302 total respondents, 55% rated Bristol Water as a very good or good corporate citizen; the same figure as last year.
We also asked stakeholders/view on our overall reputation and 64% agreed slightly or agreed strongly that Bristol Water has a good reputation. Additionally, 82% regard the service that they receive from Bristol Water as excellent, very good or good.
Stakeholders also expressed widespread satisfaction with the quality of the water provided, and the reliability of supply – and they emphasised the importance of focusing on delivering this essential task.
The in-depth interviews provided really useful detailed feedback on the Company's performance and reputation over the last year. Encouragingly, Bristol Water was highly regarded by virtually all the depth interview respondents, who were selected because of their status as key influential stakeholders who had regular and current contact with the business.
Our price review referral and the subsequent determination by CMA was well known and many felt that this issue distracted the senior management of Bristol Water. Most understood the reasons and encouragingly all respondents felt that this was now firmly behind us and that we were were re-engaging and making advances in a number of areas, in particular we are perceived to be very strong in customer engagement. We were also praised for being easy to contact, experienced, knowledgeable, hard working and easy to deal with at all levels.
For the year ended 31 March 2016
| 2016 | 2015 Restated1 |
||
|---|---|---|---|
| £m | £m | ||
| Turnover EBITDA Operating profit Profit before tax Profit after tax |
110.9 55.3 36.1 27.8 28.6 |
132.8 65.5 47.1 37.2 29.4 |
|
| Net debt (excluding 8.75% irredeemable cumulative preference shares) at 31 March |
290.8 | 296.6 | |
| Regulatory Capital Value (RCV) | 441.2 | 411.7 | |
| Ratio of net debt (excluding 8.75% irredeemable cumulative preference shares) to RCV |
66% | 72% | |
| Capital investment before grants and contributions | 29.6 | 59.3 |
Turnover of £110.9m is a 16% decrease reflecting CMA's final determination lower price tariffs. For AMP6, Ofwat introduced 'Wholesale Revenue Forecasting Incentive Mechanism' which will allow us in the future to recover the difference between allowed and actual revenue in future years.
EBITDA fell by £10.2m reflecting the lower turnover of £21.9m offset by lower costs of £11.7m. The lower level of operating costs was achieved through our efficiency programme. A risk-based, proactive analysis of need, solution options and timing of expenditure has been introduced that has led to a significant reduction in network and production costs as well as cost savings in central management costs. The closure of the defined benefit scheme to future accrual was implemented to improve our comparative efficiency going forward, but also led to a re-calculation of the past service cost of the scheme, resulting in a gain of £3.0m.
Operating profit decreased by £11.0m reflecting the £10.2m decrease in EBITDA and a £0.3m increase in depreciation cost.
Profit after tax decreased by £0.8m to £28.6m, the reduction is driven by the reduction in future corporation tax rates during the year from 20% to 18% which gave rise to a £6.6m credit to deferred tax. During the year, the pension asset deferred tax calculation was changed; deferred tax is now calculated at 35% on the closing pension asset and all the deferred tax is shown in the Statement of Other Comprehensive income instead of being split between here and the profit and loss. The reason for the change to the 35% tax rate is because the scheme has been closed to future accrual and any surplus can not be recovered through ongoing contribution payments. Bristol Water has an unconditional right to the refund of any surplus. Therefore, the pension asset is shown net of a 35% income tax rate which would be applicable if the funds were repaid to Bristol Water from the pension scheme. Overall, there is a tax credit of £0.8m in the current year compared to an overall tax charge of £7.8m last year. The overall effective tax rate was -3% (2014/15: 21%). The principal reason for the effective tax rate being lower than the standard corporation tax rate of 20% (2014/15: 21%) is the effect of the rate change on the opening deferred tax balances during the year.
The main cash sources we use to finance our normal operations and the extensive capital programme are the water bills paid by our customers and debt from financial markets.
1 From 1 April 2015 the company adopted FRS101. The impact of adopting FRS101 is set out in note 5.
Net debt excluding the 8.75% irredeemable cumulative preference shares was £290.8m (2014/15: £296.6m), representing approximately 66% (2014/15: 72%) of the RCV of £441.2m (2014/15: £411.7m). The increase in RCV reflects AMP5 opening adjustments of £11.9m, an increase due to indexation of £6.6m and net additions to RCV during the period of £11m.
We actively manage the net debt (gearing) ratio and maintain a headroom margin to meet adverse impacts from risks and uncertainties.
Our practice is to maintain a debt portfolio with mainly long dated maturities reflecting the long-term nature of the Company's asset base.
Cash, including deposits with banks, was £18.0m (2014/15: £10.5m), the significant cashflows during the year were:
It is our practice to pay an annual level of ordinary dividends comprising:
Due to the appeal of the Ofwat Final Determination, our Board and shareholders agreed that no base level dividend would be paid during the year (2014/15: £10.3m). Whilst the CMA determination was more favourable, the Board and shareholders have agreed to continue to limit dividend payments at the start of this regulatory period in order to take a prudent approach to financing the company's operations. A dividend payment of £1m was approved in May 2016 in respect of 2015/16 performance.
Dividends in respect of the inter-company loans paid during the year were £3.2m (2014/15: £3.2m). In addition, annual dividends of £1.1m (2014/15: £1.1m) continued to be paid on the irredeemable preference shares. The irredeemable preference shares are shown as debt in the balance sheet, and the dividend is therefore shown as a finance cost in the profit and loss account.
Pension arrangements for employees during the year were provided partly through our membership in the Water Companies' Pension Scheme ("WCPS"), which provides defined benefits based on final pensionable pay. We have a separate section within WCPS for the regulated water business; the section was closed to new employees some years ago. Since that closure all new employees are offered membership in a stakeholder pension scheme.
During the year, it was announced that the Company would close its two sections of the WCPS to future accrual for existing members at the end of 31 March 2016. The two sections are part of a defined benefit scheme and members of this scheme became 'deferred' members on closure. Employees who were part of the schemes received one year's future accrual.
The latest triennial valuation of the pension scheme was completed as at 31 March 2014. The total deficit as at 31 March 2014 measured on a long-term scheme funding basis was £2.8m. This represented a funding level of 98.4%. As a result of the Trustee's advice, we have changed the regular contributions for the main sub-section from 36.7% to 33.9% and for the alternative benefits sub-section from 24.9% to 27% from April 2015, of the relevant payroll costs.
From 1st April 2016, there are no anticipated employer contributions to the scheme. Subsequent to the year end, the Trustees have agreed that deficit contributions, previously of £0.4m per annum, will cease on 30th June 2016.
The actuarial valuation under International Financial Reporting Standard 19 (IAS 19) and therefore FRS101 at 31 March 2016 shows a net pension surplus of £31.9m which has been recognised in the financial statements (2014/15: £46.3m). The funding deficit of £2.8m and the accounting surplus of £31.9m are not comparable because:
The pension fund is in surplus under IAS19. As the scheme has been closed to future accrual the surplus can not be recovered through ongoing contribution payments. Bristol Water has an unconditional right to the refund of any surplus should one exist at the termination of the scheme, Therefore, the pension asset is shown net of a 35% income tax rate which would be applicable if the funds were repaid to Bristol Water from the pension scheme.
Further financial information in relation to defined benefit and defined contribution pension schemes is disclosed in note 23 to the financial statements.
During the year, we invested £29.6m (2014/15: £59.3m) in capital expenditure before contributions. The capital spend in 2015/16 was significantly lower than the prior year reflecting the commencement of the AMP6 capital programme and that the company adopted a prudent approach due to the uncertainty in cost allowance during the appeal of the Ofwat final determination to the CMA. Following the outcome of the CMA final determination, expenditure was kept lower than the previous year after adoption of a risk -based investment decision process.
Capital investment during the year included the following key projects:
In line with our Final Determination from PR14, the Company has started to deliver the following key outputs for the regulatory period 2016-20:
At 31 March 2016, progress towards the above improvements was as follows:
As noted above, the capital programme expenditure was scaled back until after the outcome of the CMA Final Determination. Current year expenditure is detailed above.
There has been an initial start on the National Environment Programme investigating the presence of invasive species and the protection of eels.
Commencement of Stowey pH Correction Treatment works in 2017/18
Barrow ultra-violet treatment works has been substantively completed
Risk is an inevitable aspect of operating a business. Decisions that balance risk exposure with intended financial rewards within risk tolerances are the responsibility of our management under the supervision of the Board.
We recognise the importance and benefits of timely identification, assessment and management of risks that may impact our ability to achieve our strategic objectives. In this respect, we are committed to prudent risk management practices within the context of an Enterprise Risk Management ("ERM") framework. A risk register is maintained and a comprehensive review is undertaken on a bi-annual basis by the senior managers group and the Board.
Our ERM framework is based on four core principles which establish the culture and tone that guide risk management decisions. Risk management is:
Our implementation of the ERM framework includes the following hierarchy of responsibilities:
The following six key ERM processes integrate risk management activities with strategic and operational planning, decision-making and day-to-day oversight of business activities.
Our risk management approach is comprehensive and proactive and is supported by the experience and specialised knowledge of the senior management. We use a risk matrix to regularly assess and update the net exposure (including mitigating factors) of each known material risk.
We recognise that we operate within a complex regulatory environment and it is not economically viable to fully mitigate all the risks that we face. Therefore we prioritise our risk management strategies by assigning the risks into three risk categories as shown below.
Lower appetite risks, where we seek to fully mitigate risk in most circumstances and where innovation is encouraged, but not at the risk of loss of performance:
| Risk and description | Impact | Monitoring and Mitigation |
|---|---|---|
| Water Quality, Health and Safety and Environmental incident risks are operational risks concerning failure of our mitigations and controls to prevent an accident, pollution or water quality incident |
Incidents and accidents could have harmful impacts on employees, the communities that we serve or the environment, leading to reputational damage, penalties and remediation costs resulting in lower net income. |
We minimise our incident and accident rate by following approved procedures, monitoring adherence to these procedures, proactive asset maintenance and providing adequate training. |
| Major incident risk is an operational risk associated with the significant failure, or prolonged loss of use, of a key operational asset or location |
Major incidents could impact our ability to supply water for prolonged periods and may have harmful impacts on the environment and communities we serve leading to reputational damage, penalties and remediation costs resulting in lower net income. |
We assess and improve resilience to reduce the population exposed to major disruptions to water supplies. We also undertake exercises and training, developing business continuity plans to minimise customer impact. |
Moderate appetite risks, where we accept some residual risk and where innovation is encouraged:
| Risk and description | Impact | Monitoring and Mitigation |
|---|---|---|
| Regulatory submissions & compliance risks are strategic risks, which cover price determinations and our Water Resource Management Plan (WRMP) |
The price determinations periodically made by Ofwat limit the prices the Company can charge its customers. |
We have dedicated internal resource focused on these key submissions, supplemented by external input as required, and with appropriate governance in place. |
| WRMPs set out how we intend to meet customers' water needs over the next 25 years, and are therefore closely linked to subsequent price determinaiton submisisons. |
We have also conducted internal and external reviews of our approach to PR14 to identify key learning points for future submissions. |
|
| Funding and Investor confidence risks are strategic risks concerning the ability to access timely and cost effective debt or equity to support our capital expenditure programme and replace maturing debt. |
Inability to access cost effective debt or equity could result in higher interest costs, lower cash flow or liquidity difficulties. |
We maintain good relationships with our equity and debt investors through regular performance reporting and communication. We closely manage our funding and debt servicing, maintaining sufficient liquidity to meet 12 months' funding requirements. |
| Water Resource risks are strategic risks, which include planning for increased population and demand for water, together with climate change and extremes in weather. |
Inability to maintain water supplies by underestimating the demand for water in comparison to the resource available. |
We maintain Water Resource Plans to manage long term water resource risk, allowing us to develop risk resilience. We encourage customer metering, promote efficient use of water by customers, and we actively manage leakage to control wastage from our system. We maintain business continuity plans and ongoing monitoring of resource levels to manage residual exposures. |
|---|---|---|
| Change in regulatory regime is the regulatory risk of changes in the Regulatory Regime adversely affecting us, including the introduction of Retail competition, Upstream separation and Abstraction reform. |
Favourable changes can create new opportunities for greater efficiencies, while unfavourable changes can reduce efficiency, increase costs and have harmful effects on employee and customer relations. The abstraction reform may also affect the Water Resource risk. |
We monitor and maintain active dialogue with policy makers to identify opportunities and respond to any legislative changes to minimise the impact. In respect of Retail Competition, we are working with our joint billing partner, Wessex Water, to set up a new retailer, water2business. |
| Expense management risk is the financial risk concerning unexpected non-recoverable increases in costs. |
Unanticipated increases in costs could result in lower earnings and cash flow. |
We mitigate this risk by following policies, procurement strategies, efficiency initiatives, and reducing exposure / hedging where appropriate. |
| Customer Satisfaction is a reputational risk in relation to meeting customer service expectations |
Delivery of good customer management practices is aligned to our corporate strategy, and can reduce negative customer feedback and result in financial reward through the pricing mechanism. The opposite is also true. |
We mitigate this risk by following policies and procedures in support of our "Bristol Water Bond". We perform monthly surveys to assess customer satisfaction and communicate with the public through a variety of media. We have a flexible approach to dealing with specific incidents, for example extending call centre hours. |
| Supply Chain Failure is an operational risk of not being able to maintain supplies of key materials or services |
Failure to maintain key supplies may result in an inability to operate specific treatment processes, increasing the risk of supply interruptions. |
We operate procurement processes to reduce exposure to a single supplier and seek treatment solutions which avoid supply chain failure risk, within our investment strategies. |
| Asset management risks are operational risks relating to managing and operating our collection, treatment and distribution assets. |
Inability to manage asset risks effectively may result in increased supply interruptions, resulting in additional costs and reduced customer satisfaction. |
We prioritise maintenance plans based on performance monitoring, inspections and key exposure assessments. |
|---|---|---|
| Capital investment evaluation and delivery is a strategic risk concerning our ability to invest effectively and efficiently. |
Inability to evaluate and deliver the capital programme may result in inefficiencies and potential financial penalties through the pricing mechanism where performance targets are not achieved. |
We control the evaluation risk by following policies and procedures to assess and authorise appropriate solutions. We control the delivery of the programme through a controlled gateway project management process from feasibility to completion. |
Higher appetite risks, where we accept more residual risk and where speculative innovation is encouraged:
| Risk and description | Impact | Monitoring and Mitigation |
|---|---|---|
| Human resources retention risk is an operational risk concerning the ability to motivate, attract and retain staff. |
Adequately trained and motivated staff are fundamental throughout the business in improving the customer experience both when incidents arise and through working towards our corporate aims. |
We publish external compliments received on the internal website and we encourage staff involvement through an incentivised suggestion scheme. We use mobile working tools to reduce paperwork and improve communications for offsite workers. |
| Current challenges include the restructuring around introducing the new operating model. |
The transition to the new operating model brings challenges with identifying roles and responsibilities, the loss of experienced staff, and an increased number of vacancies. |
We reduce uncertainty during periods of change by consulting with staff on the restructuring and other key issues, and providing dedicated resource to manage transition issues. Knowledge and talent risks are managed within the operational model project. |
We have considered the recent decision of the UK to exit the European Union, and the potential associated risks. At this stage the impact is unknown. We believe the impact will be limited as we are UK based and a regulated company. We will monitor the situation.
The Directors have performed a detailed assessment of Bristol Water's viability over a four-year period to March 2020, the end of the current Asset Management Period ('AMP'), and have also considered viability in the longer term.
Ofwat, the economic regulator for the water industry, sets a company's revenue over each five-year AMP period. Our revenues over the next four financial years, subject to inflation, were set out in the CMA determination.
Considering the long-term nature of the business, the protections that exist under the regulatory model for price control periods, the Company's current position, and its ability to effectively and efficiently manage and finance its operations, the directors have determined that the four year period to the end of the current AMP is appropriate to primarily assess the Company's long term viability.
The Company funds its investment programme through access to debt markets, securing funding that balances the long-term nature of the business with the need to maintain efficient costs. The Company is required to hold sufficient funds to meet its Regulatory Licence and debt covenant requirements, which include maintaining an investment grade credit rating. The Company sets formal criteria and limits are placed on suitable borrowers to mitigate risk in this area, with the Board approving named authorised lenders with specific lending limits. The Directors have made a key assumption that the Company is able to access markets to raise finance as required.
A new business plan was developed following the CMA outcome covering the period to March 2020. This plan considers the Company's current position, future cash flows, financing options, and key financial ratios. The new plan takes into account the current economic outlook and the impact of the reduced expenditure allowances compared to the original plan.
The revised business plan has been stress tested to assess the potential impact of the Company's principal risks and uncertainties and the effectiveness of available mitigating actions. Risks that have been assessed include high inflation, interest rates and costs, tested in severe but plausible combinations. Available mitigations include restricting dividend payments, discretionary operating expenditure and proactive capital expenditure. The company is committed to maintaining a credit rating that is above the minimum investment grade level. In an extreme scenario, a fall in rating to the minimum investment grade level would loosen the financial constraints that the business is managed under, whilst continuing to meet Regulatory Licence obligations and covenants. The Directors are confident that the mitigating actions are sufficient to address the combinations of risks that have been considered.
Based on this assessment, the Directors confirm they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the four year period ending March 2020.
The Directors also considered it appropriate to prepare the financial statements on the going concern basis, as explained in note 3.1 to the financial statements.
Due to the long term nature of the business, the Directors have also given consideration to the viability of the business beyond the current price control period. There is inherently less certainty beyond the end of the current AMP, but the Company is committed to meeting its regulatory obligations and being efficient. The Directors are confident that actions being taken in the current AMP will mean the business is also likely to continue in operation through the regulatory period to March 2025. This is based on the following key assumptions:
Our reputation is hugely important to us and we understand that our activities can have an impact on the communities we serve and the environment we steward. We seek to minimise this by delivering services responsibly and sustainably while managing the social, environmental and economic impacts of supplying quality water for our customers now, and in the future.
This report provides an overview of the work we have done to embrace responsibility for our corporate actions and to encourage a positive impact on the environment and stakeholders including customers, employees, investors, communities and others.
Our focus is to improve the culture of the organisation by putting the customer at the heart of every decision. Here are some of the ways we are working to improve our customer care
Nearly 450 people work at Bristol Water in a diversity of roles, from engineers to call centre operatives, from water quality scientists to recreation rangers. In order to enhance understanding of how all of our jobs impact on the customer, we took part in the Institute of Customer Service's 'Customer Service Week'. This gave employees a chance to host workshops to inform and engage their colleagues in the projects they are involved in, and staff were also given the opportunity to experience different customer-facing roles.
It was a highly successful week with a competitive team element to encourage participation and genuine feedback from staff that it was valuable and they'd like to do more.
Since then we have implemented a new programme of enhanced customer care, with new training in complaint handling and increasing our customer feedback channels.
We value our customers' opinions and already survey our customers in a number of ways; we do mont hly follow up feedback surveys with customers who have been in contact with us (our economic regulator Ofwat also does this every quarter) and we also do an annual survey of 500 customers. We also encourage feedback from every job that we do, with freepost feedback cards posted through doors.
Our new channel to gain improved customer insight is a quarterly online panel called 'Let us Know' which was launched in February and 1600 people signed up to take part. As well as rating our service - overall 86% said we were 'good, very good, excellent' - we received 500 comments and this type of feedback can only help us continue to improve our service to customers.
We also have a new customer champion in Peaches Golding OBE, who has been appointed as Independent Chair of Bristol Water's Challenge Panel. Customer Challenge Panels and Groups hold water companies to account on performance and are used to influence business planning and provide ongoing assurance to Ofwat. Mrs Golding is a trusted and respected business and community leader with an array of experience in representing customer groups. As Chair, she will ensure Bristol Water customers' views are at the heart of decision-making.
[Pic caption] "I am delighted to be able to take on the role of customer champion. As a Bristol Water customer I feel well placed to understand and represent the views of the people the business serves. This is a time of major change for the water industry and the Challenge Panel will play an important part in shaping the future of Bristol Water."
Our complex water infrastructure requires regular maintenance and renovation and this work can impact customers through supply issues or roadworks. We realise the importance of keeping customers informed about planned work and its progress, and we communicate with them in a variety of ways to maximise our reach.
Occasionally we have to deal with burst water mains that can cause supply problems. On a daily basis we focus on providing the best methods of customer communication, as this is an area our customers tell us is increasingly important.
In 2015/16 we introduced Twitter and we now have more than 1000 followers. As well as providing an effective broadcast channel for our emergency and corporate news, our customers appreciate the quick response to queries, and enjoy sharing their pictures, news and points of view with us.
We have also introduced SMS text messaging and voicemail to keep our customers informed about planned works or disruptions. We have used this mostly to warn people of unplanned supply issues, sending texts to affected customers who we have a mobile number for, and voicemails to those with a landline number. Over the next year, we will extend this service to include reminders of appointments and also introduce a live web chat function.
We write to all households to inform them of upcoming work in their area, we publicise and host drop-in sessions at our mobile Customer Service Unit so people can talk to us directly, and we have assigned special helpers among our work crews so the public can easily identify who to talk to on site. In addition, we provide updates on our website and use the local media to warn people about road closures and traffic hot spots.
During 2015/16 we had a total of 263,193 unique visitors who used our website 370,984 times viewing a total of 1,015,256 pages. There were 1016 average daily sessions with 6,275 being the highest daily recorded on the 23rd September, when we experienced a burst main in Bedminster. It is clear the website is an important channel for customers and this year we upgraded it to provide improved access to information from mobile devices as they are now the predominant way of accessing the website. Our customer magazine Watertalk is distributed to every household in our supply area, providing a cost effective medium to communicate to our customers. We gave the magazine a complete design overhaul in this year.
In April 2016 we submitted the planning application for the £27million Southern Resilience Scheme, a scheme designed to secure the water supply to over 280,000 people across Somerset. Getting to the planning application stage takes a lot of work and a lot of public engagement. So even before it was submitted we were off meeting Parish and Town Councils, writing to all those residents affected. One of the main difficulties with communicating a scheme of this size to the public is making relevant to each resident. So to do this we have created an interactive map that gives times and dates of every single time we cross a road telling the customer exactly what will be happening. So a resident may be thinking 30km of pipeline; £27 million – that sounds big and an awful lot of disruption'. But with the map they can see that the roads near them are only closed for a week or so.
With schemes this large it is easy to focus on the big picture and the overall message. But how it affects customers is what people actually want to know, so we have tried to break it down to loads of small parts and give people that detail.
This year our customer service team have focused on vulnerability: whether in terms of ensuring accessibility to our services or in terms of affordability - recognising that all customers can potentially be vulnerable at any time, that it is transient and situational. We are working hard to identify and adapt to help those in vulnerable circumstances.
As well as offering a tailored and sensitive approach, we are training our staff to be more aware of vulnerability triggers and signals and helping them engage with vulnerable customers and build trust. All of our customer-facing employees interact with customers who may be in a vulnerable state and we have introduced best practice and case study sharing and simplified customer service policies, as well as empowering our employees to provide flexibility for the customer.
It is vitally important to us that we quickly identify and help those who are struggling to pay their water bills. Our attitude is that we have a life-long relationship with our customers and we want to make it a positive one, and for people to value our service.
We take a proactive approach to identify those who may benefit from the social tariffs, payment and debt management schemes we offer. We assess customers on an individual basis and look to tailor the package of assistance offered to their needs.
At the moment, 10,920 households are currently benefitting from our 'Restart' and 'Restart Plus' schemes and 'Assist' tariff, which help customers who are in financial difficulty get back on track with their water bill. The number of customers receiving assistance through these measures has increased by 3.4% since last year.
1,831 households are on our WaterSure Plus metered tariff, which is for customers in receipt of certain benefits and are defined by the government as 'vulnerable', either because they have a medical condition or a large family.
We are amongst the first in the industry to introduce a Pension Credit scheme that gives a 20 % discount on water bills to Bristol Water customers who live in a household where all members over the age of 18 are in receipt of Pension Credit.
Elderly and disabled customers, those undergoing home dialysis or have priority needs can also register for Customer Care Plus which gives access to a range of special services free of charge.
We know that water debt is seldom isolated and we work to provide independent debt advice, working closely with the agencies that provide these services. In 2015/16 we donated £50,000 to debt advice agencies across our supply area to support them in providing free advice to our customers.
Jan is a mother of four who lives in Greenbank, Bristol. In 2012 she found herself in debt for the first time in her life. She discovered that her former partner had not paid the bills for almost two years, and left her facing thousands of pounds of debt. This included over £2,000 to Bristol Water and similar amounts to other utility companies.
"Debt was something that happened to other people, not me. I'd never thought about it before," Jan explained, saying it took a while to admit to herself what was going on; she did not want to believe it had happened to her.
Jan just needed a little help; she'd never been in this position before she had no idea how to cope. Eventually she ended up at Talking Money in Old Market. "It was so simple once I was there. No criticism from anyone, no judging me. They just wanted to help".
She was advised to call the utility companies and that they would help break down the payments to make them manageable. That is exactly what she did. She called Bristol Water and told us she was struggling to pay. We put Jan on a new tariff called 'Assist' and a programme called 'Restart' to repay her debt. By 2014 her debt was clear.
"Dealing with the companies was easy as pie. Not only does it heal some emotional pain, but speaking to the companies you owe money to makes you realise they only want to help."
"Everyone is so nice I don't know why I was so scared. Everyone knew what they were doing as they deal with these sort of things every day."
We offer free water-saving equipment and kits to help you save water and save money. Tap inserts, shower regulators, save-a-flush devices and shower timers can help you save over £160 on your utility bills if you are on a water meter. If you're not on a water meter, the devices will help reduce the amount of hot water you use, so you'll need less fuel to heat it. It only takes a few minutes to order your free pack – visit www.savewatersavemoney.co.uk
Bristol Water plays a pivotal role in sustaining a healthy environment and efficiently using resources. Bristol 2015 European Green Capital was a great platform for us to showcase this.
Providing an outstanding water service in a sustainable way means we must engage with our customers and stakeholders and focus on our environmental vision to make efficient use of resources. Our performance results are outlined on pages 81 to 118, but there's a lot more to tell.
We have again met our lowest ever leakage target set by Ofwat with leakage levels continuing to be among the best in the UK. Leakage targets are set by Ofwat at a level where the overall value of the water lost is balanced out by the costs of increased leakage control activity.
Saving water is good for our customers and good for the environment as it reduces their water and energy bills - it's also good for Bristol Water as it reduces our energy consumption and helps reduce our carbon footprint. This is one of the main topics we promote through our events and education programmes. Over the past year, we have carried out a number of events and handed out 35,000 free water-saving devices, which has helped our customers to save half a million litres of water every day.
We also help local schools to save water and money through our Eco School Challenge, during which we carry out a water audit for the school, water workshops for the children and distribute water-saving devices for teachers and pupils to take home. In 2015/16 five primary schools took part and saved an estimated 18 million litres of water.
Our commitment to protecting biodiversity can be shown through a new measure we have developed called the "Biodiversity Index". This new approach helps us to measure the value of our own sites and then quantify the impact and benefit of our actions on the broader environment. Last year saw the new method put into practice with an increase of our index from 17,613.21 to 17,684.59.
As part of our National Environment Programme commitments we continue to work closely with the Sustainable Eel Group and local wildlife groups to help protect the critically endangered European eel. As part of our alternative measures we have helped deliver a number of projects to help address this issue and protect the eel in the watercourses we manage.
Our Spawn to be Wild project, in partnership with Avon Wildlife Trust, enables local school pupils to care for eels before releasing them into the wild. This year schools from the North of Bristol took part with releases taking place at the historic Berkeley Castle. The project has also recently won a Green Apple award for environmental best practice.
Partnering with Westcountry and Bristol Avon Rivers Trusts we have launched a citizen science project to monitor eel populations, engage volunteers and help "restock" eels over migratory obstacles. We are trialling the new methodology at pinch points, using a vertical drop net known as a ballerina skirt that provides refuge for eels untilthey are able to access new habitats. This conservation effort also contributed to the World Fish Migration day and the final global eel count of 29 million eels.
Our other education programme Trout and About also had another successful season, with four Bristol schools taking part in the scheme, hatching baby trout in a tank in the classroom, rearing them and releasing them in to our lakes.
In AMP5 our focus was to reduce metaldehyde concentrations in the water we abstract from the Gloucester & Sharpness Canal. To do so we promoted the use of alternatives to metaldehyde and encouraged farmers to take a more strategic approach to slug control. Accompanying this we implemented a strategic monitoring programme to develop our understanding of risk areas in the catchment.
For AMP6 we are continuing the work we started in AMP5 on metaldehyde, with catchment management now a requirement under the National Environment Programme. We are implementing a broader programme to include nutrients (nitrates and phosphorus) and soils in not only the canal but also our Mendip reservoirs. Our catchment management work includes a water quality monitoring programme as well as engagement with farmers and other stakeholders.
In late 2014 we formed the Mendip Lakes Partnership, comprising Bristol Water, Natural England, Environment Agency, Catchment Sensitive Farming and Avon Wildlife Trust, to bring together organisations with an interest in improving environmental management across the Mendip catchments. By working together we can present a unified and coordinated message, providing a single point of contact for farmers to receive advice and support to reduce diffuse pollution risk from their farms. The Partnership is working with farmers to provide specialist advice and analysis of nutrients, soil fertility, slurry and manures, as well as support with applications for the new Countryside Stewardship Mid-Tier and Higher Tier schemes and Water Capital Grant schemes. Bristol Water is also running its own capital grant scheme to provide an additional impetus for real improvement in the Chew and Blagdon catchments. Future plans include setting up soil management trials and development of a farmer led steering group for the project.
Our National Environment Programme obligations include a requirement to look at how Chew and Blagdon Reservoirs affect ecology in the downstream watercourses; the River Chew and the River Yeo, and to come up with and trial feasible mitigation measures for any impacts we find. The first impact assessment phase of this work has been completed, and we are about to embark on the options appraisal stage. Initial findings are that our compensation releases are very different from the flows expected in a natural situation and that this is affecting the sorts of gravels found in the river beds for some distance downstream of the reservoirs.
We have two water quality investigations under way under the National Environment Porgramme: one at Barrow Reservoir No. 3 to determine the causes of elevated phosphorus levels; and another to find out why the water quality in the River Yeo downstream of Blagdon Reservoir is poor. The Blagdon water quality investigation is a jointly funded project with Wessex Water, Yeo Valley Farms and the Environment Agency and is another good example of partnership working.
Taken as a whole, our catchment management and environmental projects will make water cheaper to treat for Bristol Water and improve the environment for the local community.
As an official supporter of this exciting programme and one of the principal businesses involved in the process since the city's first attempts to gain this prestigious award, we were able to give our water saving initiatives a Green Capital badge, contribute to a major shift in behaviour and attitudes to the environment, and help create a sustainable legacy.
Our most visible project was the installation of a new drinking fountain in one of Bristol's most popular landmarks, Millennium Square. The fountain was installed with the support of At-Bristol, an internationally renowned science visitor attraction. We created a glass portal in the ground showing the water main and smart meter technology below it.
The fountain has been adopted by At-Bristol long term, and we hope as a result to make a significant saving on plastic waste reduction while increasing the appreciation of tap water.
A less visible project we implemented for Green Capital Year was in partnership with UWE using four identical student blocks as a live lab to test water efficiency devices and behaviour to support facil ities management and save costs. This experiment has produced masses of data that is being interpreted by many interested parties, including a team who have developed a computer game to engage students in the next stage. It has also resulted in significant savings for the university, which will be an interesting case study to share as we move into an open market for business.
We need the best employees in order to achieve our goal to deliver an exceptional customer service and ensuring that our employees remain motivated and skilled in their roles is of paramount importance to us.
In 2014 we redesigned our appraisal process, enabling all staff to have an opportunity to review their performance and talk about development needs at least twice a year. We have a comprehensive view of all required training in our operational areas and update our systems so that we know what training is expected, when it was completed and when it is next due for all roles.
Our employee engagement surveys are carried out every three years and the next one is due in 2016. Engagement surveys are not a measure of happiness or satisfaction; they gauge employee sentiment around passion for and pride in their work, whether they believe in the vision of the organisation, and if their work is valued and their talents are well utilised. This year the engagement survey will be conducted after a period of major change and we will use the results to highlight areas that require additional focus to restore balance to the workforce, the business and our customers.
Improving communication across the entire business has been a key driver again this year. Ensuring t he workforce feel included and informed of company, industry and market news is a proven motivator. We are reviewing our communication to staff so that we continue to improve this area and also to further improve two-way communications. The weekly 'CEO Update' continues to be successful and provides regular insights into the key issues that the business is facing.
Providing a highly reliable water service is our core business so working closely with suppliers to assist us in delivering this service is key to our success.
Specialist contractors and suppliers help us deliver our capital and operating projects and these contractors/suppliers are selected because they have the same business ethos as us and we believe they will enhance the delivery of our service to our customers.
As part of the appointment process, contracting partners have to meet the rigorous cost and delivery criteria that we apply within our business and all our procurement procedures adhere to the EU Utilities Directive.
We have recently reviewed the way we work with self-lay organisations and have committed to change the structure and processes of our price and non-price terms when providing services to self-lay organisations (SLO), who are able to bid for mains laying work for new developments.
The changes include creating two separate functions, one retail facing and the other wholesale facing. This will ensure self-lay organisations are not being unfairly disadvantaged when it comes to connecting new developments. These changes will help effective competition which can deliver benefits for customers, offering choice and acting as a driver for more customer-focused, efficient and innovative services.
We are committed to being fair and effective in the way we work with all external suppliers and contractors in order to support the growth in the local economy.
We aim to make a positive difference by supporting and promoting the wellbeing of communities and by behaving in a socially responsible manner.
The events team attended a wide variety of events to help increase Bristol Water's visibility and contact within the community. From county shows in North Somerset and South Gloucestershire to the city's vibrant Harbour Festival, the events were packed with our customers and we estimate that we would have had contact with approximately 6000 people. As well as promoting water efficiency, we also gave out free water at several events, providing water bowsers at seven city events in total. This not only provides a valuable hydration service and saves plastic waste, but also positions our product in the heart of the community. Additionally, we were able to speak to people directly affected by major works via our mobile exhibition vehicle.
Mr Ludeman was appointed to the Board in July 2012. He is a non-executive director of Eversholt Rail UK limited, Interserve plc and Aspin Group Limited. During the year, he was appointed Non-Executive Chairman at TXM Plant Limited. He is also a director of London Transport Museum Limited. Formerly he was Chief Executive Officer of Go-Ahead Group plc and has forty years' experience in the transport industry.
Mr García was appointed to the Board in January 2009 initially as a non-executive director. He joined Agbar in 1989 and has held a number of senior positions. He was appointed Chief Executive Officer of the Company on 1 April 2009.
Mr Axtell was appointed to the Board on 30 January 2014. He joined the Company in September 2013 as Deputy Finance Director and was appointed Finance Director in January 2014. On 24 November 2015, Mr Axtell was appointed Chief Financial Officer. Prior to joining the Company he held a number of senior finance roles at RWE, one of Europe's leading electricity and gas companies.
Mr Tutton was appointed to the Board in January 2015. He is an economic consultant specialising in economic regulation, especially in the energy sector. Currently a Panel Member at the Competition and Markets Authority. His previous roles have included 'UK Director of Regulation' at National Grid and 'Director of UK Utility Regulation' at PricewaterhouseCoopers.
Mr Curling was appointed to the board in 2004. A corporate lawyer by background, he was for 15 years either Chief Executive or Executive Chairman of Osborne Clarke. For the past twelve years he has sat on the boards of a number of listed and private companies. He has several appointments in the Bristol regional voluntary sector.
Mr Davis was appointed to the Board in November 2008. He has a mechanical engineering background, having worked with Rolls Royce before moving to the packaging industry, where he had Managing Director roles in both the UK and the USA. Mr Davis is also a non executive director at Thatcher's Cider Company Limited.
Mr Hemus joined the Board on 1 April 2016 as an independent non-executive director. He was an audit partner at PricewaterhouseCoopers for 23 years and, for the final 4 years of his career, was one of the two National Risk and Quality Partners for the Audit and Assurance section of the firm. He retired from PricewaterhouseCoopers on 30 June 2013.
Mr Smerdon is the Executive Vice President and Chief Financial Officer of Capstone Infrastructure Corporation. He was formerly Managing Director of Macquarie Infrastructure and Real Assets Canada Limited. Mr Smerdon joined the Board on 5 October 2011.
Mr Ichishi is Deputy Manager of the ITOCHU Corporation of Japan, responsible for development of ITOCHU's global water and environment sector project. He has held various senior positions within the Itochu group. He is also a non-executive director of Canaragua Concesiones, S.A. He was appointed to the Board on 10 May 2012.
Mr Anglada re-joined the Board as a non executive director on 24 March 2016, having been Finance Director between 2009 and 2014. Mr Anglada is CFO of Suez Advanced Solutions and has been with Suez since 1999.
Mr Malan is the Senior Partner of iCON Infrastructure LLP, an independent infrastructure investment firm which he founded in 2011. Mr Malan has over 20 years of experience in infrastructure advisory and investment at iCON Infrastructure LLP, Deutsche Bank and Macquarie Bank. He was appointed to the Board on 7th July 2016.
BWH (formerly known as Bristol Water Holdings plc), referred to above, was the former listed holding company of the Company.
The directors present their report and the audited financial statements for the year ended 31 March 2016.
The enhanced financial review including financial results and KPIs is contained in the Strategic Report on pages 10 to 39.
The total dividend paid during the year ended 31 March 2016 was 53.4p (2014/15: 224.8p) per ordinary share. The Board has proposed a final dividend of £1m in respect of the financial year 2015/16 (2014/15: £nil). The Company's practice for dividends to shareholders is contained in the Strategic Report on page 31.
Details of the issued share capital are shown in notes 18 and 25. The Company has one class of ordinary shares, which carry no right to fixed income. Each ordinary share carries the right to one vote at general meetings of the Company.
There are no specific restrictions on the size of a holding or on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between indirect holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. No person has any special rights of control over the Company's share capital and all issued shares are fully paid. The Articles of Association themselves may be amended by special resolution of the shareholders.
Under its Articles of Association and the Companies Acts, the Company has in issue 5,998,025 ordinary shares as disclosed in note 25. All the ordinary shares are owned by Bristol Water Core Holdings Limited, which is itself a wholly owned subsidiary within CSE Water UK group. In addition, the Company has in issue 12,500,000 8.75% irredeemable cumulative preference shares of £1 each, details of which are disclosed in note 25.
As detailed in the Corporate Governance Report on page 68, the directors continue to adopt the going concern basis of accounting in preparing these financial statements.
Details of financial risks faced by the Company and the related mitigating factors are included in note 21 to the financial statements.
The directors who served during the year or were appointed before this report were:
K Ludeman, Chairman L García, Chief Executive Officer M Axtell, Chief Financial Officer M King, Regulatory Director (resigned 31 December 2015) P McIlwraith, Independent Non-Executive (retired 31 May 2016) C Curling, Independent Non-Executive R Davis, Independent Non-Executive T Tutton, Independent Non-Executive A Hemus, Independent Non-Executive (appointed 1 April 2016) M Bernstein, Non-Executive (resigned 24 June 2016) M Smerdon, Non-Executive A Harding, Non-Executive (retired 24 March 2016) H Ichishi, Non-Executive M Anglada, Non Executive (appointed 24 March 2016) P Malan, Non-Executive (appointed 7 July 2016)
Mr Curling will offer himself for re-election and Messrs Hemus, Anglada and Malan will offer themselves for election at the AGM.
All current executive directors have service contracts with 12-month notice periods.
At no time during the year has any director had a material interest in any contract of significance with the Company.
The interests in shares and other contracts of Messrs Bernstein and Smerdon with other companies within the Capstone group are not disclosed within this report.
The interests in shares and other contracts of Messrs García, Anglada and Harding with other companies within the Agbar or Suez groups are not disclosed within this report.
The interests in shares and other contracts of Mr Ichishi with other companies within the Itochu group are not disclosed within this report.
The details of ultimate parent company and controlling party, and the smallest and largest group in which this company is consolidated, are provided in note 28 to the financial statements.
The Company undertakes research and development projects in relation to its business. Expenditure during the year amounted to £0.1m (2014/15: £0.1m).
The details of the financial instruments are provided in note 20 to the financial statements.
In accordance with its Instrument of Appointment made under the Water Industry Act 1991 as amended, the directors are of the opinion that the Company is in compliance with paragraph 3.1 of Condition K of that Instrument, which relates to the control of the assets of the Appointed Business. Copies of the Regulatory Accounts required under the Instrument of Appointment are available from the Company Secretary.
During the year, and to the date of approval of the financial statements, the Company had in force a qualifying third party indemnity provision in favour of all directors of the Company against any liability which may arise in respect of their current or past duties as director of the Company or its holding companies, subject to the conditions set out in the Companies Act 2006.
Each of the persons who is a director at the date of approval of this report confirms that:
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Information on employment policies and practices is contained within the 'Best people right culture' part of the Strategic Report on pages 26 and 27.
Information on environmental matters and KPIs are contained within the 'Environmentally sustainable' part of the Strategic Report on pages 21 to 23.
Commentary on the main drivers of future profitability is contained in the Strategic Report on page 39.
As required by the UK Corporate Governance Code and the Bristol Water Code, the directors confirm that they consider that the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy. When arriving at this position the Board was assisted by a number of processes including the following:
The Board is committed to run the Company in the best long-term interests of our customers, shareholders and wider stakeholders. The Board and its committees have overall responsibility for the management of the Company and its regulated business. They set the Company's values and standards, make strategic decisions, and provide leadership for the long term success of the Company. We believe this can only be achieved if the activities of the Company are supported by appropriate governance processes, within a framework of effective controls, enabling risks to be managed and the necessary financial and human resources are in place for the Company to meet its objectives. The Board monitors the Company's compliance with its statutory and regulatory obligations to its customers, shareholders, regulators, other stakeholders and the environment.
Ofwat, our economic regulator, also enforces the same approach in its publication on the principles of Board Leadership, Transparency and Governance, the "Ofwat Principles".
We have fused together these Ofwat principles and the UK Corporate Governance Code into our code of corporate governance ("the Code"), available on our website. During the year, Ofwat has set out a new requirement for a viability statement which we have complied with and which is detailed on page 37 to 39.
We detail below how, in practice, the Company has applied its code of corporate governance, comprising the Code and the Ofwat principles. The Board considers that it complies with all of the requirements of its code of corporate governance.
The Chairman, who is a non-executive director independent upon appointment, is responsible for the leadership of the Board and for its effectiveness. He sets the agenda for the Board meetings, providing adequate time for each agenda item. He is responsible for the culture of the boardroom which is one of openness and debate encouraging, in particular, the effective contribution of non-executive directors.
The non-executive directors monitor the performance of the executive directors and management, and form the majority of the members of three key Board committees, namely:
ARAC which reviews the integrity of financial information, financial controls and risk management; Remuneration Committee which reviews Company remuneration policy and Executive remuneration packages; and Nomination Committee which oversees the Board composition and succession planning.
The Board membership means that the Board is compliant with the Ofwat Principles which require that:
A copy of the terms and conditions of appointment of non-executive directors are available to shareholders by writing to the Company Secretary, Mr Robson.
At 26 May 2016 the Board of Bristol Water plc (the "Board") comprised the Chairman (a non-executive director), two executive directors and nine other non-executive directors. Five of the non-executive directors are, in the opinion of the Board, independent. Messrs Curling and McIlwraith have both served for more than nine years on the Board, and the Code requires the Board to specifically assess that these directors are independent of the executive as a result of this fact. That assessment has been carried out by the Board and the Board believes that this time served has not caused the two directors to cease to be independent. The assessment has been made by the Board based on its views of their performance on the Board and taking into account their experience and character. Mr McIIwraith retired from the Board on 31 May 2016.
Tony Hemus was considered to be independent of the management of the company on his appointment having not been involved with Bristol Water before or in the audit at Bristol Water despite his role as a partner at PwC, the Company's auditors. Given that Tony Hemus retired in June 2013 he was a partner at PwC for a two month period during the three years prior to his appointment. However this was not viewed as being a factor affecting his independence.
The independent non-executive directors constructively challenge and help develop proposals on strategy and bring independent judgement, knowledge and experience to the Board's deliberations. The independent directors are of sufficient calibre and number to ensure that their views carry significant weight in the Board's decision making.
The recruitment process carried out during the year for Tony Hemus was conducted by an external independent firm, Moon Consulting, in conjunction with a team appointed by the Nomination Committee consisting of the chairman and Mr García. Mr Hemus was appointed with effect from 1 April 2016. Details of Mr Hemus's background and experience are mentioned on page 48.
The Board executes overall control of the Company's affairs by reference to the schedule of matters reserved for its decision. These include the approval of strategy, financial statements, major capital expenditure, authority levels for expenditure, treasury, and risk management policies.
The directors are provided with appropriate, accurate and relevant financial and operational information necessary for them to discharge their duties. The management information is prepared by senior management of the Company and produced on a timely basis for consideration and review by the directors. Clarification, amplification and specific updates are provided as requested by directors. Senior managers periodically attend the Board to provide appropriate levels of information on key issues. The Company Secretary is responsible for the provision of legal guidance and support as and when appropriate and on corporate governance matters In furtherance of its duties, there are agreed procedures for the directors to take independent professional advice, if necessary, at the Company's expense. All directors have access to the advice and services of the Company Secretary. The appropriateness of the information received is reviewed as part of the Board evaluation process carried out annually.
There is clear segregation between the roles of Chairman and Chief Executive Officer to ensure appropriate Board balance and the Board has approved a specific statement on responsibilities for each role.
The Board performs an annual review of its performance and considers this to be sensible part of good corporate governance. Following an external independent evaluation of the Board and its committees' performance in 2013/14, the Board has conducted an internal evaluation of its performance including that of its committees and individual directors. Each director was asked to answer a suite of questions on performance devised for the Company which included areas of corporate governance. The results were considered at the July 2016 board meeting.
The Company is privately owned and representatives of each shareholder are Board members thus there is good face to face on-going contact during the year and at Board meetings.
The non-executives met without the executive directors present on 26 November 2015, 2 February 2016 and 24 March 2016.
Such interaction ensures that the members of the Board, and in particular the non-executive directors, develop an understanding of the views of shareholders.
The following table sets out the attendance of directors at the Board and committee meetings during the year:
| Number of meetings | ||||||
|---|---|---|---|---|---|---|
| Board | Maximum | Percentage | ARAC | Remuneration | Nomination | |
| meetings | possible | attendance | meetings | Committee | Committee | |
| attended | during | during | (maximum | meetings | meetings | |
| (maximum | appointment | appointment | 4) | (maximum 7) | (maximum 4) | |
| 9) | period | period | ||||
| K Ludeman, Chairman | 9 | 9 | 100% | 4 | ||
| L García, Chief Executive Officer | 9 | 9 | 100% | 4 | ||
| M Axtell, Chief Financial Officer | 9 | 9 | 100% | |||
| M King, Regulatory Director | 7 | 7 | 100% | |||
| (resigned 31 December 2015) | ||||||
| P McIlw raith, Non-Executive (retired | 9 | 9 | 100% | 4 | 7 | 4 |
| 31 May 2016) | ||||||
| C Curling, Non-Executive | 8 | 9 | 89% | 3 | 6 | 3 |
| R Davis, Non-Executive | 8 | 9 | 89% | 4 | 7 | 4 |
| T Tutton, Non-Executive | 9 | 9 | 100% | 4 | 7 | 4 |
| M Bernstein, Non-Executive | 9 | 9 | 100% | 7 | 4 | |
| M Smerdon, Non-Executive | 9 | 9 | 100% | 4 | ||
| A Harding, Non-Executive (retired | 9 | 9 | 100% | 7 | 4 | |
| 24 March 2016) | ||||||
| H Ichishi, Non-Executive | 9 | 9 | 100% | |||
| M Anglada, Non-Executive | 0 | 0 | 0% | |||
| (appointed 24 March 2016) | ||||||
| T Hemus Non-Executive (appointed | 0 | 0 | 0% | |||
| 1 April 2016) |
In accordance with an approved scheme of delegation, the Board delegates day-to-day and business management control to the executive directors.
The Board considers the Chairman to be the principal point of reference to whom concerns of whatever nature may be conveyed. The Board has also appointed Mr Tutton as the senior independent member of the Board on the retirement of Mr McIlwraith on 31 May 2016 and in the event that an individual does not wish to raise a concern with the Chairman, such concerns may be raised with Mr Tutton.
Under its Instrument of Appointment as a water undertaker, the Company is subject to a number of ringfencing conditions to protect it from the risks arising from other activities which may be carried out by other companies within the group so that the Company does not, whether through its involvement in those activities or by its financial policies, put at risk its ability either to carry out its functions as a water undertaker or to finance them.
The ARAC's terms of reference include the points recommended by the Code. Its duties include monitoring internal controls, approving the accounting policies and reviewing the interim and annual financial statements before submission to the Board. The Committee, previously chaired by Mr McIIwraith until his retirement on 31 May 2016, is currently chaired by Mr Hemus, independent non-executive director, and currently comprises three other independent non-executive directors Messrs Curling, Davis and Tutton, and non-executive director Mr Smerdon. On the retirement of Mr McIlwraith, Mr Hemus is the only qualified accountant in the Committee. The external auditors attended all meetings during the year and the internal auditors report to this Committee on a regular basis.
The Committee is formally constituted with terms of reference which includes review of whistleblowing arrangements. A copy of the terms of reference is available to shareholders by writing to the Company Secretary, Mr Robson.
The Committee reviewed the financial statements along with the areas of significant management judgement and other significant financial matters. In forming their view on the appropriateness of accounting treatment and disclosures in relation these areas of management judgement and financial matters, the Committee considered:
Specific factors in relation to individual judgements and matters included in the following tables, assurance from the internal audit procedures, and effectiveness of the internal control environment of the Company.
| Financial Judgement | How the Committee addressed the judgement |
|---|---|
| Pension surplus valuation Pension arrangements for the Company's employees are provided partly through the Company's membership of the WCPS, which provides defined benefits based on final pensionable pay. Due to the nature of the benefit, the amounts recognised in the financial statements which are based on the principles set out in IAS19, involve significant judgements around the assumptions including: longevity estimation for scheme members, rate of return on the scheme assets, calculation of the present value of pension liability, |
Specific factors considered by the Committee: The calculations for determining the pension position performed by an independent and qualified actuary in accordance with the principles of the accounting standard (IAS19). An assessment of the degree of prudence within these assumptions. The last funding valuation performed as of 31 March 2014 which required a more detailed review of the key actuarial assumptions by the actuary. Tax was deducted at 35% on the basis the surplus is recoverable by the company. A curtailment gain was recognised during the year, following the closure of the scheme to |
| tax deduction, and other demographic factors. During the year, Bristol Water closed its two sections of the Water Company Pension Scheme to future accrual at 31 March 2016. The two sections are defined benefit schemes and members of these schemes became 'deferred' members on closure. A curtailment gain of £3.1m was reported in the Financial Statements due to the net impact of these changes. Accordingly, accounting for pensions is regarded as a key judgemental area. |
future accrual. |
| Financial Judgement | How the Committee addressed the judgement |
|---|---|
| Bad debt provision Amongst utilities, water companies are in a unique situation whereby they have a statutory duty to supply customers, but no statutory power, in case of non-recovery of the water bills, to cut-off supply of domestic water users. This contributes to a higher level of bad debt in the water industry compared to other utilities despite the fact that water bills generally cost less than other utilities. The calculation of bad debt provision is based on estimation of collection rates in future years, and therefore involves a degree of management judgement as to the appropriateness of the provision level relative to the debtor balances. |
Specific factors considered by the Committee: The Committee has reviewed the key aspects of the calculation and has had detailed discussions with the management on the basis for judgement applied for the bad debt provision. The method of calculation is considered to be sufficiently prudent. All debt that is over four years old is fully provided for, and the provision for the amounts less than four years old, follows a systematic approach based on the historic collection rates, adjusted for any known economic factors. The judgement applied by the management is considered appropriate and functions as a bridge between the provision calculation based on historic collection rates, and the recent collection trends and economic factors. The underlying collection and debtor balances information, used for the calculation of the provision, is provided by our joint venture company (BWBSL), which uses a robust system and audited procedures to collate this information. |
| Accounting for expenditure on infrastructure assets The Company owns a network of mains and associated underground pipework, and impounding and pumped raw water storage reservoirs. These assets are collectively called 'Infrastructure assets'. Depending on the nature of the underlying work, expenditure on infrastructure assets is either capitalised as addition to fixed assets or treated as operational cost in the Profit and Loss Account. Given the size and complex nature of the capital programme, the accounting for infrastructure projects involves significant management judgement. The approach to the key judgements under FRS101 is different to UKGAAP. |
Specific factors considered by the Committee: The nature of capital projects is reviewed by the Capital Planning and Finance teams to determine their accounting treatment. There are robust processes and controls to appropriately allocate staff time between work on capital and operational projects. Management perform quarterly reviews of the actual financial performance versus budget which helps identify anomalies in accounting treatment of infrastructure projects. |
Other significant financial matters considered by the Committee
| Financial matter | How the Committee addressed these matters |
|---|---|
| Revenue recognition | Specific factors considered by the Committee: |
| Based on the number of properties, | |
| approximately 50% of our customers have a | The income accrual is based on historic metered |
| water meter installed at their properties. | volumes, calculation of consumption not billed, |
| Meters for the majority of the customers are | and the applicable tariffs. |
| read on a six monthly basis. | Underlying data is provided by our joint venture company (BWBSL), which uses a robust system |
| Therefore at the end of the year an estimation | and audited procedures to calculate the accrual. |
| of water consumed by the customers, over the period between their last meter reading date and the year-end date, is made and an income |
The accrued income amounts and supporting reports are reviewed for reasonableness by the Company's management. |
| accrual recognised accordingly. |
The Committee is of the view that the accounting treatment and disclosures in relation to the areas of management judgement and other significant financial matters considered above are appropriate.
Management continues to prepare accounts on a going concern basis. More details are set out in the Viability Statement included in the Strategic Report on pages 37 to 39.
The ARAC is responsible for the development, implementation and monitoring of the Company's policy on external audit. The policy assigns oversight responsibility for monitoring the independence, objectivity and compliance with ethical and regulatory requirements to the ARAC, and day-to-day responsibility to the Chief Financial Officer. It states that the external auditors are jointly responsible to the Board and the ARAC and that the ARAC is the primary contact. The policy also sets out the categories of non-audit services which the external auditors will and will not be allowed to provide to the Company, subject to de minimis levels.
To fulfil its responsibility regarding the independence of the external auditors, the ARAC reviewed:
To assess the effectiveness of the external auditors, the ARAC reviewed:
Based on the above assessments, the Committee is of the view that the external auditors are independent and effective.
PricewaterhouseCoopers LLP became the Company's auditors in 2012. As a Public Interest Entity with debt listed on the London Stock Exchange, the Company will, in future, be subject to the mandatory auditor rotation requirements of the European Union. Subject to the detailed implementation of the European requirements in the UK, this is likely to mean that the Company will put the external audit out to tender at least every ten years, and change auditors at least every twenty years. The ARAC will, however, c ontinue to consider annually the need to go to tender for audit quality or independence reasons. These measures will also mean the Company complies with the UK Corporate Governance Code provision that the external audit should be put out to tender at least every ten years.
The detail of auditors' remuneration is provided in note 7d of the financial statements.
The ARAC is required to assist the Board to fulfil its responsibilities relating to the adequacy of the plans relating to the internal auditors. To fulfil these duties the Committee reviewed:
Internal Audit's terms of reference and access to ARAC and all members of the Board; Internal Audit's plans and its achievement of the planned activity; and the results of key audits and other significant findings, management's responses thereto, and the timeliness of resolution.
The role and composition of the Remuneration Committee is set out in the Remuneration Committee Report on page 70.
Under the chairmanship of Mr Ludeman this committee has the task of recommending new appointments to the Board, reviewing re-appointments when they become due and undertaking annual performance evaluations of the Board Members. Before making an appointment the Committee evaluates the balance of skills, knowledge and experience on the Board and, in the light of this evaluation, prepares a description of the role and capabilities required for a particular appointment. It also reviews the structure, size and composition of the Board and makes recommendations to the Board with regard to any changes. Mr Ludeman will not chair this committee if it discusses the performance of the chairman or the appointment of a new chairman of the Board. Its current membership comprises Messrs Ludeman, Curling, Davis, Tutton, García, Bernstein, Hemus and Anglada.
The Committee met during the year to discuss succession planning for the non-executive directors.
In accordance with the Code the Committee reports that the Board has a 'Board Diversity Policy' which confirms that the Board is committed to:
Currently there is no female representation at the Board level. In our workforce of 428 at 31 March 2016 around 28% (2015 – 27%) were women. Whilst in senior/middle management executive positions the female representation was around 29% (2015 – 25%). The Nomination Committee has reviewed and monitored compliance with the Board Diversity Policy and is of the view that the Board Diversity Policy is complied with.
Bristol Water plc strongly opposes slavery and human trafficking, and would never knowingly conduct business with suppliers or contractors engaged in such practices. We serve a population of 1.1 million people and all the associated businesses in an area of 2,400 square kilometres (1,000 square miles) centred on Bristol.
We have several key contract partners who work with us to help us deliver services for our customers in our supply chain including amongst others Bristol Wessex Billing Services, Kier Services and Wipro. They and our other suppliers know we require our contractors and suppliers to comply with the Modern Slavery Act 2015 (the "Act"), and that we will not continue to purchase goods or services from any supplier that is found to be engaging in human trafficking or using slave labour.
Bristol Water does, and will continue to, review its own operations and supply chain to evaluate human trafficking and slavery risks. At present this is done internally. Bristol Water also includes compliance with the Act as a requirement before entering new agreements with contractors or suppliers.
Bristol Water has provided training to its procurement staff on this topic, all of whom are aware of the risks of human trafficking and slavery, and Bristol Water's obligations under the Act. The training materials are made available to all in the company.
Currently, Bristol Water considers there to be no evidence of slavery and human trafficking within its own operations, and low risk in those of its suppliers and contractors.
Sufficient time is available both for the executive and non-executive directors to undertake their responsibilities. The expected time commitment is considered as part of the appointment process of nonexecutive directors including the requirement for additional commitment outside scheduled Board meetings when required including for induction. A defined expected time commitment is set out in the terms of appointment of non-executive directors.
Directors disclose their other commitments at the time of appointment. Further updates are made as required, if a non-executive director takes any additional commitment. Executive Directors do not hold any non-executive directorships.
New directors receive appropriate induction on their appointment to the Board covering the activities of the Company and its key business and financial risks, the terms of reference of the Board and its committees and the Company's latest financial information.
On-going training is provided as necessary and includes updates from the Company Secretary on changes to the Listing Rules, requirements under the Companies Act and other regulatory matters. Directors may consult with the Company Secretary at any time on matters related to their role on the Board. The Chairman regularly reviews and agrees with each director their training and development needs. Also all the directors have access to independent professional advice at the Company's expense where they judge it necessary to discharge their duties, with requests for such advice being authorised by the Chairman or the Company Secretary.
All directors are subject to election by shareholders at the first annual general meeting after their appointment, and to re-election thereafter at intervals of no more than three years.
All non-executive directors who have been directors for nine years or more need to offer themselves for reelection at each annual general meeting.
On 29 April 2016, Capstone Infrastructure announced the successful completion of its sale to iCON Infrastructure Partners III, L.P. ("iCON III"), an English limited partnership with 37 limited partner investors comprising, inter alia, international pension funds, asset manager and insurance companies. The largest limited partner in iCON III represents c. 8% of the aggregate investment commitments to iCON III. The managing general partner of iCON III is iCON Infrastructure Management III Limited ("iCON").
Accordingly Bristol Water's ultimate holding entity is now iCON III since iCON III indirectly owns Capstone Infrastructure Corporation ("Capstone"). Capstone has preference shares listed on the Toronto Stock Exchange and complies with the corporate governance requirements of that exchange and Canadian securities regulations as well as publishing its own corporate governance guidelines on its website.
iCON has, in its capacity as managing general partner of iCON III, been made aware of Ofwat's "Board leadership, Transparency and Governance - Holding Company Principles" published in April 2014 which set out Ofwat's expectations for holding companies of regulated water companies to show their adherence to the highest standards of corporate governance. This section of the annual report addresses these Holding Company Principles and a note will go on the Bristol Water website noting the compliance with these principles and cross referring to this report where necessary.
There are no matters reserved specifically by the Board of Bristol Water for the shareholders. iCON has confirmed on behalf of iCON III that, other than iCON III's limited partners and iCON III's direct and indirect wholly-owned subsidiaries, there are no other beneficiaries of the regulated company within the iCON group structure. iCON has, on behalf of iCON III in its capacity as managing general partner of iCON III, given an undertaking compliant with Condition P of the Company's licence when it took control of the Company (the "Condition P Undertaking").
iCON has confirmed, on behalf of iCON III in its capacity as managing general partner of iCON III, as follows:
| iCON Infrastructure Partners III, LP |
Limited Partnership registered in Guernsey |
No Designated Members Managing General Partner – iCON Infrastructure Management III Limited |
|---|---|---|
| Altyerre Coöperatief U.A (iCON infrastructure Partners III, LP own 99% and iCON III Guernsey Limited own 1%) |
Incorporated in Netherlands | Iain Macleod Leo Kuipers |
| Altyerre Capital B.V (Wholly owned by Atyerre Coöperatief) |
Incorporated in Netherlands | Iain Macleod Leo Kuipers |
| Irving Infrastructure Corporation (Wholly owned by Atyerre Capital B.V) |
Incorporated in British Columbia | Paul Malan Enis Moran Gary Eade |
| Capstone Infrastructure Corporation (Wholly owned by Irving Infrastructure) |
Incorporated in British Colombia, Canada Quoted on the Toronto Stock Exchange |
V. James Sardo (resigned 29 April 2016) Francois Roy (resigned 29 April 2016) Goran Mornhed (resigned 29 April 2016)) Jerry Patova (resigned 29 April 2016) Janet Woodruff Richard Knowles Michael Bernstein Adèle Malo (appointed 29 April 2016) Paul Malan (appointed 29 April 2016) Gary Eade (appointed 29 April 2016) Enis Moran (appointed 29 April 2016) |
| CSE Water Limited (MPT Utilities Water Limited owns 71.4% and Itochu owns 28.6%) |
Incorporated in England & Wales Holding Company |
Hajime Ichishi Michael Bernstein Michael Smerdon Waleed Elgohary (appointed 1 October 2015 and resigned 10 May 2016) Paul Malan (appointed 10 May 2016) |
| Bristol Water Holdings UK Limited (CSE Water owns 70% and Agbar owns 30%) |
Incorporated in England & Wales Holding Company |
Hajime Ichishi Michael Bernstein Michael Smerdon Waleed Elgohary (appointed 1 October 2015 and resigned 13 May 2016) Miquel Anglada (appointed 1 October 2015) Paul Malan (appointed 13 May 2016) |
| Bristol Water Holdings Limited (Wholly owned by Bristol Water Holdings UK Limited) |
Incorporated in England & Wales Holding Company |
Hajime Ichishi Michael Bernstein Michael Smerdon Waleed Elgohary (appointed 1 October 2015 and resigned 13 May 2016) Miquel Anglada (appointed 1 October 2015) Paul Malan (appointed 13 May 2016) |
Christopher Chambers (appointed 29 March 2016)
Luis Garcia (appointed 14 March 2016) Ben Newby (appointed 14 March 2016)
The Company has complied and continues to comply with the Code provisions on internal control having established the procedures necessary to implement the guidance issued in September 1999 (the Turnbull Committee report) and by regular review and reporting in accordance with that guidance.
The Board has overall responsibility for the system of internal control, and for reviewing its effectiveness, whilst the role of management is to implement the Board policies on risk and control. The system of internal control is designed to manage risks to appropriate minima rather than eliminate any risk of failure in achieving business objectives. In pursuing these objectives, internal controls can only provide reasonable and not absolute assurance against material misstatement or loss.
The Board encourages a culture of risk identification and management across all aspects of the business, and uses the following main processes to review the effectiveness of the system of internal control:
The executive directors:
The Company operates through a formal board structure, which:
The Board:
The Board undertook formal assessments of risk management and control arrangements including the risk register on 7 July 2016 and concluded that the overall internal control framework was working effectively. The review included an assessment of the effectiveness of internal controls within the group's joint venture, BWBSL.
This Remuneration Committee report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006 and in line with the regulations issued by the Department for Business, Innovation and Skills ("BIS") governing the content of remuneration reports.
The Board has reviewed the Company's compliance with its Code on remuneration-related matters. It is the opinion of the Board that the Company complied with all remuneration-related aspects of its Code during the year.
The year under review has been challenging for the Company, delivering on the AMP6 programme for our customers post the PR14 process and the CMA referral.
This section summarises the key matters considered by the Remuneration Committee ("the Committee") during the year.
The Committee's approach on incentives is for any annual bonus to be aligned to the Company's performance against its strategic and business objectives for the year, and for the performance targets of any LTIP scheme to be based on the longer term strategic and sustainable success of the business in the current regulatory environment.
The Committee makes recommendations to the Board both on the overall remuneration policy and levels for the Company's employees, and on the remuneration and other employment conditions of the executive directors and senior executives of the Company, in consultation with the Chairman and/or CEO as appropriate.
The membership of the Committee during the year comprised:
Mr Curling (Chairman), Mr Davis, Mr McIlwraith (retired 31 May 2016), Mr Bernstein, Mr Harding (retired 30 March 2016) and Mr Tutton.
Attendances at Committee meetings are set out on page 55 in the Corporate Governance Report.
The Committee is formally constituted with written terms of reference. A copy of the terms of reference has been provided to all equity shareholders and is available on the Company's website.
During the year Luis García (Chief Executive Officer), Fay Crompton/Rhian Langham (respective Heads of HR) and Stephen Robson (Company Secretary) provided material advice and services to the Commit tee. Guidance was also obtained from Towers Watson to support decisions on the Company's grading structure and remuneration policies. No director played a part in any discussions about his own remuneration. No Committee member has any personal financial interest or conflict of interest arising from crossdirectorships or from day-to-day involvement in running the business.
The key principle underpinning remuneration policy is to offer remuneration packages which can attract, motivate and retain directors and senior managers of the calibre needed to execute the Company's business strategy, which is important for the delivery of a consistently high quality service to customers and a sound, sustainable financial performance.
The main elements of the remuneration package for executive directors are:
| Remuneration element |
Purpose and link to strategy |
Policy and approach | Maximum opportunity | Change in policy since 2014/15 |
|---|---|---|---|---|
| Salary | Attract and retain high perf orming indiv iduals ref lecting market v alue of role and director's skills, experience and perf ormance. |
Factors taken into account when determining basic annual salary lev els are objectiv e research, the indiv idual executiv e director's perf ormance during the y ear and pay and conditions throughout the Company . Salaries are rev iewed at the discretion of the Committee and are not subject to f ormal annual rev iew. |
Base salary increases are applied in line with the outcome of any rev iews conducted by the Committee. |
Introduced a consistent and robust role grading methodology which is aligned to salary and total remuneration benchmarking surv ey data f rom a market leading prov ider. This is in line with the Company wide policy . |
| Annual bonus | Driv es and rewards | Based on the achiev ement of f our | Maximum of 30% of base | New bonus structure f or |
| perf ormance against personal objectiv es and selected f inancial and operational KPIs which are linked directly with business strategy and customer outcomes. |
balanced elements: customer serv ice, f inancial, operational and health and saf ety targets; and an ov erall assessment of personal perf ormance and achiev ement of indiv idual objectiv es. The same business objectiv e targets are applied to all staf f who |
salary (sav e in exceptional circumstances). |
16/17 and an interim bonus structure f or 15/16. |
|
| receiv e bonuses. The customer serv ice and operational targets are set around measurable outcomes which the Company believ es are important to customers such as water quality , leakage target compliance, minimising interruptions to supply and the Of wat customer serv ice measure, the SIM. Bonus scheme targets are set |
||||
| annually . | ||||
| LTIP Pension |
Incentiv ise long-term deliv ery of saf e, excellent quality water, outstanding customer serv ice and achiev ement of f inancial objectiv es. Align executiv e directors' long-term interests with those of customers, long term shareholders and other stakeholders. Attract and retain high |
The LTIP is based not upon total shareholder return but upon long term strategic goals of the Company , including customer outcomes. The LTIP award benef it is based on one third of the f inal base salary at 31 March 2015, the number of y ears f or benef it accrual and the percentage achiev ement of the perf ormance conditions of the scheme. Pension contributions are made to |
As disclosed below. N/A |
No scheme cov ering AMP6 perf ormance has been proposed to date. None. |
| perf orming indiv iduals ref lecting market v alue of role and director's skills, experience and perf ormance. |
personal or the Company stakeholder schemes at a specif ied percentage of basic salary . |
|||
| Benef its | Attract and retain high perf orming indiv iduals ref lecting market v alue of role and director's skills, experience and perf ormance. |
Ref lecting market practice and comprising the prov ision of a company car and priv ate medical insurance. Some expatriate benef its prov ided to Mr García are not borne by the Company . The expatriate benef its include f ree f urnished accommodation, utilities, tax adv ice and priv ate school f ees where appropriate. |
N/A | None. |
The Company has previously operated an LTIP scheme for AMP5, which aimed to incentivise the executive team to align their long-term interests with those of customers, long-term shareholders and other stakeholders.
Currently there is no LTIP in place for AMP6; however this arrangement is under review.
There is no share option scheme.
Details of the employment contracts of the executive directors at the end of the year are as follows:
| Contract date | Notice period |
Unexpired term | |
|---|---|---|---|
| L García | 23 April 2009 | 1 year | rolling 1 year |
| M Axtell | 11 November 2015 | 1 year | rolling 1 year |
The notice periods disclosed above are considered by the Committee to be suitable given the nature of each role and each director's function within the business.
Upon loss of office, a director will normally be entitled to full pay during their notice period subject, however, to the Company's right to exercise discretion having regard to the individual's performance during the period of qualifying service and the circumstances contributing to the loss of office.
Directors' contracts do not provide for other compensation payable on early termination.
When recruiting at executive level, the Committee aims to offer a package in line with the policy outlined above. However, the Committee retains discretion to make a proposal which is outside the standard terms in order to secure the appointment of the right calibre of individual. In determining the appropriate arrangements, the Committee retains the right to benchmark the role against other similar positions in the wider market and may take into account any other relevant factors.
The Committee may also make arrangements to compensate the new executive for "loss" of existing remuneration benefits when leaving a previous employer. In doing so, the Committee may take account of the form in which the previous remuneration was granted, the relevant performance conditions and the length of the time which the performance periods have remaining.
The remuneration of the non-executive directors is determined by the Board and is based on market evidence of fees paid to non-executive directors in companies of comparable size and on the time required for the proper performance of the role. Additional responsibilities are also taken into account. No director votes in respect of his own remuneration.
Non-executive directors do not have contracts of employment, do not participate in the Company designated pension schemes or bonus schemes and do not receive any taxable benefits in kind. The terms of appointment do not entitle non-executive directors to receive compensation in the event of early termination of their appointment.
Fees paid to non-executive directors are reviewed at the discretion of the Board.
This section has been prepared in accordance with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The information has been audited as indicated.
| L García | M Axtell | M King1 | ||||
|---|---|---|---|---|---|---|
| 2015/16 | 2014/15 | 2015/16 | 2014/15 | 2015/16 | 2014/15 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
| Salary/fees | 194 | 194 | 1282 | 123 | 87 | 112 |
| Compensation for loss of office | - | - | - | - | 79 | - |
| Bonus | 40 | 51 | 38 | 35 | 3 | 27 |
| Benefits | 11 | 10 | 4 | 3 | 2 | 3 |
| Pension | 12 | 12 | 8 | 7 | 5 | 7 |
| Single Figure pre-LTIP | 257 | 267 | 178 | 168 | 176 | 149 |
| Change since 2013/14 | -3.7% | 3.1% | 6.0% | 5.7% | 18.1% | -0.9% |
| LTIP3 | - | 187 | - | 36 | - | 43 |
| Single Figure | 257 | 454 | 178 | 204 | 176 | 192 |
Single total figure for remuneration of executive directors for 2015/16 (audited)
1 Resigned as the Regulation Director on 31 December 2015 and, accordingly, the remuneration in the above table reflects only Mr King's nine months' service and his compensation for loss of office payment in 2015/16.
2 Follow ing a Company w ide restructure, Mr Axtell w as appointed as Chief Financial Officer in November 2015. The salary in 2015/16 reflects an increase due to the additional responsibilities of the role.
3 There is no LTIP in place for 2015/16. The figures disclosed for 2014/15 LTIP represent the benefit earned from performance measures which were met during 2014/15 only and have no component dependent on future years' performance. The 2014/15 figures differ from the expenses recorded in the Profit and Loss Account, as they represent a prudent estimate by management of the value of aw ards accrued in respect of the LTIP at 31 March 2015.
Bonus includes amounts accrued and approved, but not paid as at 31 March 2016 and relates to the period served as a director.
Single total figure for remuneration of non-executive directors for 2015/16 (audited)
| Salary/fees | |||
|---|---|---|---|
| 2015/16 | 2014/15 | ||
| £'000 | £'000 | ||
| K Ludeman | 100 | 77 | |
| P McIlwraith | 43 | 43 | |
| C Curling | 40 | 40 | |
| R Davis | 35 | 35 | |
| T Tutton | 35 | 9 | |
| M Bernstein1 | - | - | |
| A Harding1 | - | - | |
| H Ichishi1 | - | - | |
| M Smerdon1 | - | - | |
| Single Figure | 253 | 204 |
1No remuneration has been paid by the Company.
The Chairman's salary was increased with effect from 1 July 2015 following a market review of nonexecutive chairmen's salaries and a review of the duties performed by the Chairman.
The non-executive directors do not receive a bonus or any other benefits.
The remuneration policy for the financial year was approved by the Committee on 9 July 2015.
A salary review conducted by the Committee during 2015/16 resulted in no increase in base salary effective from April 2015 for any employees, including the Chief Executive and all executive directors (2014/15: all staff: 2.50% base salary increase; Chief Executive Officer: 2.50% base salary increase).
The proportion of base salary awarded to the Chief Executive Officer as annual bonus for 2015/16 fell by 5.67% compared with the prior year (2014/15: decrease of 26.74%). The proportion of base salary awarded to all other staff as annual bonus for the same period fell by 0.05% compared with the prior year (2014/15: decrease of 15.60%).
During the year under review, the Company's annual bonus scheme was suspended due to the referral to CMA. At the year end, the financial performance was reviewed alongside operational, financial, health and safety and customer service performance and it was decided that payment of a bonus was appropriate, with distribution to staff being based on a percentage of salary according to individual performance ratings.
This resulted in an average bonus payment of £900 per employee (2014/15: £727 per employee). This is the average bonus for those at the lowest grade group.
The resulting bonus awards, after assessment of personal performance, were:
| L García | 57% of maximum bonus entitlement, i.e. 21% of base salary |
|---|---|
| M Axtell | 82% of maximum bonus entitlement, i.e. 30% of base salary |
The Committee determined that the level of bonus awards above were appropriate, reflecting the levels of performance achieved against the strategic objectives during the year.
These include the provision of a company car or equivalent cash allowance, and private medical insurance.
Benefits, including benefits in kind, payable to the Chief Executive Officer increased by 6.89% compared with the prior year (2014/15: increase 3.58% ). Benefits payable to all other eligible staff have remained constant compared with the prior year (2014/15: constant).
Depending on the individual employee role, the benefits may include provision of company car and fuel, car and fuel allowances, health care or child care vouchers.
The period to which the AMP 5 LTIP related ended on 31 March 2015. One commercially sensitive performance condition could not be determined until after that date because it was linked to the outcome of the CMA referral of the PR14 process. In the event no amount in respect of the LTIP award became payable by reference to that performance condition. Therefore, the amount payable under the AMP5 LTIP is in line with the performance stated in the Bristol Water Plc Annual Report 2015 reflecting a performance achievement of 48.08%.
The payments in respect of the LTIP are being made in two equal instalments: the first was paid on 31 December 2015 and the second is due for payment on 31 December 2016.
At 31 March 2016, no director was accruing benefits under the Company's defined benefit pension scheme.
Mr García became a member of the Company designated stakeholder pension scheme in October 2013 under the Government's pension auto-enrolment legislation. Since that time, the Company has been making contributions equivalent to 6% of annual base salary to the scheme on Mr García's behalf. Contributions paid to the scheme for the financial year totalled £11,566 (2014/15: £11,556).
At 31 March 2016, Mr Axtell was a member of the Company designated stakeholder pension scheme and the contribution paid to the scheme during the financial year was £7,651, an amount equivalent to 6% of annual base salary (2014/15: £7,380).
Mr King became a member of the Company designated stakeholder scheme on 1 April 2015. The contribution paid to the scheme during the financial year was £5,052, an amount equivalent to 6% of annual salary (2014/15: £6,736, 6% of annual salary to a private pension scheme on his behalf).
Any newly-appointed executive directors recruited externally will be offered membership of a Company designated stakeholder pension scheme or the option of a contribution by the Company to a personal pension plan.
During the year ended 31 March 2016 none of the directors had any interest in the shares of the Company.
The same remuneration policy will be applied as in the year under review, except that the Committee has approved an annual bonus scheme for all employees with performance targets based on customer service, financial, operational and health and safety objectives, with payment being by reference also to individual performance ratings.
The weightings allocated to each component of the bonus scheme are as follows:
In line with the BIS disclosure requirements in respect of directors' remuneration, the minimum, expected and maximum total remuneration of the executive directors based upon the proposed policy for 2016/17 is shown in the charts on the following pages.
The maximum scenario described below is included to comply with the disclosure requirements introduced by the BIS in respect of directors' remuneration. It is the opinion of the Committee that the maximum level is highly unlikely to be reached given the stretching nature of the targets set.
There is no LTIP included in the charts as there is not currently a scheme in place.
The minimum award represents all elements of the remuneration package which are not dependent upon performance criteria, namely base salary, the benefits package and pension (a fixed percentage of base salary).
The maximum award represents the maximum total package which may be earned by each director assuming that all the Company and individual performance targets relating to bonus are achieved in their entirety. In such exceptional circumstances, the executive directors are entitled to 120% of their bonus entitlement of 30% of their respective base salaries. This entitlement is available to all staff who earn a bonus in cases of exceptional performance.
The following table shows the total remuneration payable by the Company to Luis García, the Chief Executive Officer, in respect of service for the five year period from 1 April 2011 to 31 March 2016.
| Year ended 31 March: | |||||
|---|---|---|---|---|---|
| 2012 | 2013 | 2014 | 2015 | 2016 | |
| £'000 | £'000 | £'000 | £'000 | £'000 | |
| Base salary | 156 | 185 | 189 | 194 | 194 |
| Bonus | |||||
| Bonus | 33 | 58 | 54 | 51 | 40 |
| Bonus as proportion of salary | 21% | 31% | 29% | 27% | 21% |
| Maximum bonus achievable (of base salary) | 36% | 36% | 36% | 36% | 36% |
| Proportion of maximum bonus achieved | 59% | 87% | 79% | 73% | 57% |
| LTIP earned | - | - | 48 | 187 | - |
| Benefits | 8 | 9 | 9 | 10 | 11 |
| Pension | - | - | 6 | 12 | 12 |
| Total remuneration | 197 | 252 | 306 | 454 | 257 |
The 2014/15 LTIP payments are being made in two equal instalments; the first instalment was paid on 31 December 2015 and the second instalment is due for payment on 31 December 2016.
The Committee is aware of the importance of pay across the Company in delivering the Company's strategy and of the level of executive remuneration in relation to other cash disbursements. The table below shows the relationship between the Company's financial performance, payments made to shareholders and expenditure on payroll.
| Year ended 31 March | Year ended 31 March 2015 | |
|---|---|---|
| 2016 | £m | |
| £m | ||
| EBITDA | 55.3 | 69.6 |
| PBT | 27.8 | 37.2 |
| Payments to shareholders: Base level dividends |
- | 10.3 |
| Inter-company loan interest related | ||
| dividends | 3.2 | 3.2 |
| Payments to employees: | ||
| Wages and salaries excluding directors | 15.7 | 16.5 |
| Wages and salaries including directors | 16.6 | 17.5 |
for the year ended 31 March 2016
| 2016 | 2015 | ||
|---|---|---|---|
| Note | £m | restated £m |
|
| Revenue | 3.2,6 | 110.9 | 132.8 |
| Operating costs | 7 | (74.8) | (85.7) |
| Operating profit | 36.1 | 47.1 | |
| Other net interest payable and similar charges | 8 | (7.2) | (8.8) |
| Dividends on 8.75% irredeemable cumulative preference shares | 8 | (1.1) | (1.1) |
| Net interest payable and similar charges | (8.3) | (9.9) | |
| Profit on ordinary activities before taxation | 27.8 | 37.2 | |
| Taxation on profit on ordinary activities | 9 | 0.8 | (7.8) |
| Profit for the financial year | 28.6 | 29.4 | |
| Earnings per ordinary share | 10 | 476.7p | 490.0p |
All activities above relate to the continuing activities of the Company.
There is no material difference between the profit on ordinary activities before tax and the profit for the financial year stated above and their historical cost equivalents.
for the year ended 31 March 2016
| 2016 | |||
|---|---|---|---|
| Note | £m | restated £m |
|
| Profit attributable to Bristol Water plc shareholders | 28.6 | 29.4 | |
| Other comprehensive income: | |||
| Items that will not be reclassified to profit and loss Actuarial (loss)/gain on retirement benefit surplus Attributable current taxation |
24 9 |
(2.2) 1.1 |
16.5 - |
| Change in the fair value of the interest rate swaps | 20 | (0.3) | (0.6) |
| Deferred taxation | 9 | (7.9) | (3.2) |
| Other comprehensive (expense) / income for the year, net of tax |
(9.3) | 12.7 | |
| Total comprehensive income for the year | 19.3 | 42.1 |
| 2016 | 2015 restated |
||
|---|---|---|---|
| Note | £m | £m | |
| Fixed assets | |||
| Property, plant and equipment | 11 | 556.6 | 546.0 |
| Intangible assets | 12 | 5.0 | 6.5 |
| Other investments - Loans to a UK holding company | 13 | 68.5 | 68.5 |
| 630.1 | 621.0 | ||
| Current assets | |||
| Inventory | 14 | 1.3 | 1.3 |
| Trade and other receivables | 15 | 30.7 | 34.5 |
| Cash and cash equivalents | 16 | 18.0 | 10.6 |
| 50.0 | 46.4 | ||
| Creditors: amounts falling due within one year | |||
| Current portion of borrowings | 17 | (0.4) | (0.4) |
| Other creditors | 17 | (33.0) | (42.6) |
| (33.4) | (43.0) | ||
| Net current assets | 16.6 | 3.4 | |
| Total assets less current liabilities | 646.7 | 624.4 | |
| Creditors: amounts falling due after more than one | |||
| year Borrowings and derivatives |
18,19,21 | (308.4) | (306.7) |
| 8.75% irredeemable cumulative preference shares | 18, 19, 25 | (12.5) | (12.5) |
| Deferred income | 22 | (71.7) | (69.2) |
| Provisions for liabilities | 23 | (59.1) | (71.5) |
| Net assets excluding retirement benefit surplus | 195.0 | 164.5 | |
| Retirement benefit surplus | 24 | 31.9 | 46.3 |
| Net assets including retirement benefit surplus | 226.9 | 210.8 | |
| Equity Called-up share capital |
25 | 6.0 | 6.0 |
| Share premium account | 4.4 | 4.4 | |
| Other reserves | 4.1 | 4.3 | |
| Retained earnings | 212.4 | 196.1 | |
| Total Equity | 226.9 | 210.8 |
For the year ended 31 March 2016
| Called up share capital |
Share premium account |
Capital redemption reserve |
Hedging reserve |
Retained earnings |
Total | |
|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | |
| Balance at 1 April 2014 (restated) | 6.0 | 4.4 | 5.8 | (1.0) | 167.0 | 182.2 |
| Profit for the year | - | - | - | - | 29.4 | 29.4 |
| Other comprehensive income for the year: Actuarial gains recognised in respect of retirement benefit obligations |
- | - | - | - | 16.5 | 16.5 |
| Fair value of interest rate swap | - | - | - | (0.6) | - | (0.6) |
| Deferred taxation | - | - | - | 0.1 | (3.3) | (3.2) |
| Total comprehensive income for the year | - | - | - | (0.5) | 42.6 | 42.1 |
| Ordinary dividends | - | - | - | - | (13.5) | (13.5) |
| Balance as at 31 March 2015 (restated) | 6.0 | 4.4 | 5.8 | (1.5) | 196.1 | 210.8 |
| Balance as at 1 April 2015 (restated) | 6.0 | 4.4 | 5.8 | (1.5) | 196.1 | 210.8 |
| Profit for the year | - | - | - | - | 28.6 | 28.6 |
| Other comprehensive income for the year: Actuarial loss recognised in respect of retirement benefit obligations Attributable current taxation |
- - |
- - |
- - |
- - |
(2.2) 1.1 |
(2.2) 1.1 |
| Fair value of interest rate swaps | - | - | - | (0.3) | - | (0.3) |
| Deferred taxation | - | - | - | 0.1 | (8.0) | (7.9) |
| Total comprehensive income for the year | - | - | - | (0.2) | 19.5 | 19.3 |
| Ordinary dividends | - | - | - | - | (3.2) | (3.2) |
| Balance as at 31 March 2016 | 6.0 | 4.4 | 5.8 | (1.7) | 212.4 | 226.9 |
The Board has proposed a dividend of £1m in respect of the financial year 2015/16 (2014/15: £nil)
For the year ended 31 March 2016
| 2016 | 2015 | ||
|---|---|---|---|
| Note | £m | restated £m |
|
| Cash flows from operating activities | |||
| Profit before taxation | 27.8 | 37.2 | |
| Adjustments for: | |||
| Depreciation, net of amortisation of deferred income | 7 | 17.2 | 16.8 |
| Amortisation of intangibles | 7 | 2.0 | 2.0 |
| Difference between pension charges and normal | |||
| contributions | (2.9) | (0.2) | |
| Gain on disposal of assets | - | (0.3) | |
| Interest income | 8 | (4.2) | (4.1) |
| Interest expense | 8 | 14.0 | 15.2 |
| Pension interest income | 8 | (1.5) | (1.2) |
| Decrease / (Increase) in trade and other receivables | 15 | 4.5 | (2.6) |
| (Decrease) / Increase in trade and other creditors and | |||
| provisions | (5.6) | 2.4 | |
| Additional contributions to pension scheme | (0.4) | (0.4) | |
| Cash generated from operations | 50.9 | 64.8 | |
| Interest paid | (11.6) | (11.3) | |
| Corporation taxes paid | (2.2) | (2.6) | |
| Net cash inflows from operating activities | 37.1 | 50.9 | |
| Cash flows from investing activities Purchase of property plant and equipment |
(33.5) | (57.0) | |
| Contributions received | 22 | 4.2 | 3.6 |
| Proceeds from sale of fixed assets | 0.1 | 0.5 | |
| Interest received | 8 | 4.2 | 4.1 |
| Net cash used in investing activities | (25.0) | (48.8) | |
| Cash flows from financing activities | |||
| Proceeds from long-term borrowings | - | 60.6 | |
| Repayment of long-term borrowings | - | (50.0) | |
| Payment of finance lease liabilities Preference dividends paid |
(0.3) (1.1) |
(0.3) (1.1) |
|
| Equity dividends paid | (3.2) | (13.5) | |
| Net cash used in financing activities | (4.6) | (4.3) | |
| Net increase / (decrease) in cash and cash equivalents | 7.5 | (2.2) | |
| Cash and cash equivalents, beginning of year | 16 | 10.5 | 12.7 |
| Cash and cash equivalents, end of year | 16 | 18.0 | 10.5 |
Bristol Water plc ("the company") is one of eight regulated Water only supply Companies ("WoCs") in England and Wales. The company is the licensed monopoly provider of water services in the Bristol area, and as such is regulated by the Water Services Regulation Authority - Ofwat.
The company is incorporated and domiciled in the UK. The address of its registered office is Bridgwater ro ad, Bristol.
The financial statements of the Company are prepared on a historical cost basis, except for financial asset and financial liabilities (including derivative instruments) measured at fair value and in accordance with Financial Reporting Standard 101, 'Reduced Disclosure Framework - Disclosure exemptions from EU-adopted IFRS for qualifying entities' (FRS 101) and with the provisions of the Companies Act 2006.
For all periods up to and including the year ended 31 March 2015, the Company prepared its financial statements in accordance with the then applicable financial reporting standards under the United Kingdom Generally Accepted Accounting Practices (UK GAAP). With effect from 1 January 2015 the Financial Reporting Council revised the financial reporting standards in the United Kingdom and Republic of Ireland and replaced them with new Financial Reporting Standards. Accordingly, from 1 April 2015 the Company has adopted FRS 101, the impact of adopting FRS 101 is set out in note 5.
The preparation of financial statements in conformity with FRS 101 requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.
The following exemptions from the requirements of IFRS have been applied in the preparation o f these financial statements, in accordance with FRS 101:
The following are the significant accounting policies applied by the Company in preparing these financial statements. These policies have been consistently applied to all years presented, unless otherwise stated :
The company meets its day-to-day working capital requirements through its cash reserves and borrowings. The company's forecasts and projections show that the company should be able to operate within the level of its current cash reserves and borrowing facilities. After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. The company therefore continues to adopt the going concern basis in preparing its financial statements. Further information on the company's borrowings is given in note 3.13
Revenue comprises of charges to customers for water and other services, exclusive of VAT.
Revenue from metered water supply is based on water consumption, and is recognised upon delivery of water. Revenue from metered water supply includes an estimate of the water consumption for customers whose meters were not read at the reporting date. The estimate covers the period between the last meter reading and the reporting dates and is recorded within accrued income.
Revenue from unmetered water supply is based on either the rateable value of the property or on an assessed volume of water supplied, and is recognised over the period to which the bill relates.
Revenue from other services is recognised upon completion of the related services.
Tangible assets are stated at historic purchase cost less accumulated depreciation and comprise infrastructure assets and other assets.
The cost of assets includes their purchase cost together with incidental expenses of acquisition and any directly attributable labour costs which are incremental to the Com pany.
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs are capitalised using a weighted average interest rate of applicable borrowings.
Depreciation is charged, where appropriate, on a straight-line basis on the original cost of assets over their expected economic lives. Freehold land is not depreciated. Depreciation of long-life assets commences when the assets are brought into use.
Assets are depreciated after commissioning over the following estimated economic lives:
| Infrastructure assets | 23 to 213 years |
|---|---|
| Operational properties and structures | 3 to 100 years |
| Plant and equipment comprising: | |
| Treatment, pumping and general plant | 2 to 30 years |
| Computer hardware, communications, meters and telemetry equipment | 4 to 15 years |
| Vehicles and mobile plant | 4 to 7 years |
| Assets under construction are not depreciated. |
The assets' remaining useful lives are reviewed periodically and adjusted prospectively, where appropriate.
The values of fixed assets are reviewed annually to determine whether their carrying amounts exceed their fair values in use. Where such an excess is believed to exist it is treated as an impairment loss and charged to the Income Statement.
An asset is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income Statement when the asset is derecognised.
Intangible assets acquired separately are measured on initial recognition as cost. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in the income statement in the year which the expenditure is incurred.
Assets are depreciated after commissioning over the following estimated economic lives:
Computer software 3 to 10 years Assets under construction are not amortised
Intangible assets with finite lives are amortised over their useful lives and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite life is reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.
An asset is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the Income Statement when the asset is derecognised..
Grants and contributions received in respect of network and other assets are recognised in line with the provisions of International Financial Reporting Interpretations Committee ("IFRIC") 18: Transfer of Assets from Customers.
Contributions are shown within deferred income on the Statement of Financial Position and the related amortisation is recognised in the Income Statement over the useful life of the relevant assets.
Grants and contributions in respect of expenditure charged to the Income Statement are recognised when the related rechargeable expenditure is incurred.
The Company operates both defined benefit and defined contribution pension arrangements. Defined benefit pension arrangements are provided through the Com pany's membership of the Water Companies' Pension Scheme (WCPS) via a separate section.
Defined benefit scheme liabilities are measured by an independent actuary using the projected unit method and discounted at the current rate of return on high quality corporate bonds of equivalent term and currency to the liability. The increase in the present value of the liabilities of the Company's defined benefit pension scheme expected to arise from employee service in the period is charged to operating profit together with the Scheme running costs.
Past service costs are recognised in profit or loss on a straight-line basis over the vesting period or immediately if the benefits have vested. Past service costs arising on a plan settlement or a curtailment are included immediately within operating costs.
The amount charged or credited to finance costs is a net interest amount calculated applying the liability discount rate to the net defined benefit liability or asset.
Actuarial gains and losses arising from experience adjustments, changes in actuarial assumptions and amendments to pension plans are immediately recognised in the period in which they occur in other comprehensive income.
Costs of defined contribution pension schemes are charged to the Income Statement in the period in which they fall due. Administration costs of defined contribution schemes are borne by the Company.
Research and development expenditure is charged to the Income Statement as incurred. Development expenditure is not capitalised as it does not meet the recognition criteria of IAS38.
Dividends and other distributions to shareholders are reflected in financial statements when approved by shareholders in a general meeting, except for interim dividends which are included in financial statements when paid by the Company. Accordingly, proposed dividends are not included as a liability in the financial statements.
Assets financed by leasing agreements that transfer substantially all the risks and rewards of ownership of an asset to the lessee are capitalised and depreciated over the shorter of their estimated useful lives and the lease term. The capital portion of the lease commitment is included in current or non-current creditors as appropriate. The capital element of the lease rental is deducted from the obligation to the lessor as paid. The interest element of lease rentals and the depreciation of the relevant assets are charged to the Income Statement.
Operating lease rental payments are charged to the Income Statement as incurred over the term of the lease.
Current tax, including UK corporation tax, is provided at amounts expected to be paid (or recovered) for the year, and any adjustment to tax payable or receivable in respect of the prior years, using the tax rates and laws that have been enacted or substantively enacted by the reporting date.
Advance Corporation Tax ("ACT") in respect of dividends in previous years is written off to the Income Statement unless it can be recovered against mainstream corporation tax in the financial year or with reasonable a ssurance in the future. Credit is taken for ACT previously written off when it is recovered against mainstream corporation tax liabilities.
Deferred tax is recognised in respect of all timing temporary differences arising between the carrying amount of assets for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the reporting date.
The carrying amount of deferred tax assets is reviewed at each reporting date. Deferred tax assets and liabilities are offset only if a legal enforcement right exists to that effect, the deferred taxes relate to the same taxation authority and that authority permits the Company to make a single net payment.
Tax is charged or credited to other comprehensive income if it relates to items that are charged or credited to other comprehensive income. Similarly, tax is charged or credited directly to equity if it relates to items that are credited or charged directly to equity. Otherwise tax is recognised in the Income Statement.
Cash and cash equivalents in the Statement of Financial Position comprise cash at banks and on hand and shortterm deposits with a maturity of three months or less.
For the purpose of the Cash Flow Statement, cash and cash equivalents consist of cash and short-term deposits as defined above, net of outstanding bank overdrafts.
Inventory is valued at the lower of cost and net realisable value. Inventory valuation is determined using the weighted average cost method. Following established practice in the water industry, no value is included in the financial statements for water held in store.
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost.
The net costs of issue of loans (being expenses incurred less premiums received) where material are amortised over the lives of the respective loans and disclosed within net borrowings. Immaterial amounts are written off as incurred. Index-linked loans are considered to be effective economic hedges and are valued at cost plus accrued indexation.
In accordance with the provisions of IAS 32, 'Financial Instruments: Presentation', and IAS 39, 'Financial Instruments: Recognition and Measurement', the Company fair values its interest-rate swaps on the Statement of Financial Position.
The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking a hedge transaction. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair value or cash flows of hedged items.
The effective portion of the swaps' fair value movements is recognised in the other comprehensive income. Should there be any ineffectiveness; the ineffective portion of the fair value movements would be recognised immediately in the Income Statement within finance charges.
Hedge accounting is discontinued when the Company revokes the hedging relationship, the hedging instrument expires, is terminated or exercised, or no longer qualifies for hedge accounting. Accordingly the cumulative gains/losses previously recognised in the Statement of Comprehensive Income are reclassified immediately to the Income Statement.
A provision is recognised when the Company has a legal or constructive obligation as a result of past event and it is probable that an outflow of economic benefits will be required to settle the obligation. Per the requirements of FRS 101 the deferred taxation provision is not discounted. Other provisions are not discounted as the effect of the time value of money is not considered material.
Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
Creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances
The company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
The annual depreciation charge for property, plant and equipment is sensitive to changes in the estimated useful economic lives and residual values of the assets . These are amended when necessary to reflect current estimates, based on technological advancement, future investments, economic utilisation and the physical condition of the assets. See note 11 for the carrying amount of the property plant and equipment and note 3.3 for the useful economic lives for each class of assets.
The annual amortisation for computer software is sensitive to changes in the estimated useful economic lives of the assets. These are amended when necessary to reflect current estimates, based on technological advancement, future investments and economic utilisation. See note 12 for the carrying amount of the intangible assets and note 3.4 for the useful economic lives of the assets.
The company makes an estimate of the recoverable value of trade and other receivables. When assessing impairment of trade and other receivables, management considers factors including the credit rating of the receivable, the aging profile of the receivables and historical experience, See note 15 for the net carrying amount of the receivables and associated impairment provision.
The company has an obligation to pay pension benefits to certain employees. The cost of these benefits and the present value of the obligation depends on a number of factors, including; life expectancy, asset valuations and the discount rate on corporate bonds. Management estimates these factors in determining the net pension obligation in the balance sheet. The assumptions reflect historical experience and current trends.
In March 2016 the scheme closed to future benefit accrual and as a result any surplus on the scheme would only be available to the company as refund rather than as a reduction in future contributions. Under current UK tax legislation an income tax deduction of 35% is applied to a refund from a UK pension scheme, before it is passed to the employer which is shown as a restriction to the value of the net pension scheme asset.
See note 24 for the disclosures of the defined benefit pension scheme.
As disclosed in note 2, these financial statements, for the year ended 31 March 2016, are the first annual financial statements the Company has prepared using FRS 101 framework. Accordingly the comparative information for the year ended 31 March 2015 has also been restated. In preparing these financial statements, the Company's opening Statement of Financial Position was prepared as at 1 April 2014. This note explains the principal adjustments made by the Company in restating its UK GAAP statement of financial position as at 1 April 2014 and its previously published UK GAAP financial statements for the year ended 31 March 2015. The Company has elected to apply full retrospective accounting for FRS 101.
| Reconciliation of equity as at 1 April 2014 | UK GAAP | Remeasurements | FRS 101 restated |
|
|---|---|---|---|---|
| Notes | £m | £m | £m | |
| Fixed assets Property, plant and equipment Intangible assets Other investments - Loans to a UK holding company |
5.1,5.2(A,B,C) 5.2(D) |
345.9 - 68.5 |
163.8 6.9 - |
509.7 6.9 68.5 |
| Current assets Inventory Trade and other receivables Cash and cash equivalents |
1.3 31.9 12.7 45.9 |
- - - - |
1.3 31.9 12.7 45.9 |
|
| Creditors: amounts falling due within one year Current portion of borrowings Other creditors |
(0.4) (42.9) (43.3) |
- - - |
(0.4) (42.9) (43.3) |
|
| Net current assets | 2.6 | - | 2.6 | |
| Total assets less current liabilities | 417.0 | 170.7 | 587.7 | |
| Creditors: amounts falling due after more than one year |
||||
| Borrowings and derivatives | (292.1) | - | (292.1) | |
| 8.75% irredeemable cumulative preference shares |
(12.5) | - | (12.5) | |
| Deferred income | 5.1,5.2(B) | (8.3) | (58.9) | (67.2) |
| Provision for liabilities | 5.2(A,B,C,E,F) | (21.3) | (40.4) | (61.7) |
| Net assets excluding retirement benefit surplus |
82.8 | 71.4 | 154.2 | |
| Retirement benefit surplus | 5.2(E) | 9.0 | 19.0 | 28.0 |
| Net assets including retirement benefit surplus |
91.8 | 90.4 | 182.2 | |
| Equity Called-up share capital Share premium account Other reserves Retained earnings |
5.2(G) | 6.0 4.4 4.8 76.6 |
- - - 90.4 |
6.0 4.4 4.8 167.0 |
| Total Equity | 91.8 | 90.4 | 182.2 | |
| UK GAAP | Remeasurements | FRS 101 restated |
||
|---|---|---|---|---|
| Notes | £m | £m | £m | |
| Fixed assets | ||||
| Property, plant and equipment | 5.1, 5.2(A,B,C) | 364.0 | 182.0 | 546.0 |
| Intangible assets Other investments - Loans to a UK holding company |
5.2(D) | - 68.5 |
6.5 - |
6.5 68.5 |
| Current assets | ||||
| Inventory | 1.3 | - | 1.3 | |
| Trade and other receivables Cash and cash equivalents |
34.5 10.6 |
- - |
34.5 10.6 |
|
| 46.4 | - | 46.4 | ||
| Creditors: amounts falling due within one year Current portion of borrowings |
(0.4) | - | (0.4) | |
| Other creditors | (42.6) | - | (42.6) | |
| (43.0) | - | (43.0) | ||
| Net current assets | 3.4 | - | 3.4 | |
| Total assets less current liabilities | 435.9 | 188.5 | 624.4 | |
| Creditors: amounts falling due after more | ||||
| than one year | ||||
| Borrowings and derivatives | (306.7) | - | (306.7) | |
| 8.75% irredeemable cumulative preference shares |
(12.5) | - | (12.5) | |
| Deferred income | 5.1,5.2(B) | (7.8) | (61.4) | (69.2) |
| Provision for liabilities | 5.2(A,B,C,E,F) | (27.3) | (44.2) | (71.5) |
| Net assets excluding retirement benefit surplus |
81.6 | 82.9 | 164.5 | |
| Retirement benefit surplus | 5.2(E) | 11.3 | 35.0 | 46.3 |
| Net assets including retirement benefit surplus |
92.9 | 117.9 | 210.8 | |
| Equity | ||||
| Called-up share capital | 6.0 | - | 6.0 | |
| Share premium account | 4.4 | - | 4.4 | |
| Other reserves Retained earnings |
5.2(G) | 4.3 78.2 |
- 117.9 |
4.3 196.1 |
| Total Equity | 92.9 | 117.9 | 210.8 |
| UK GAAP | Remeasurements | FRS 101 restated |
||
|---|---|---|---|---|
| Note | £m | £m | £m | |
| Revenue | 132.8 | - | 132.8 | |
| Operating expenses | 5.2(A,B,E) | (99.8) | 14.1 | (85.7) |
| Operating profit | 33.0 | 14.1 | 47.1 | |
| Other net interest payable and similar charges | 5.2(C,E) | (10.5) | 1.7 | (8.8) |
| Dividends on 8.75% irredeemable cumulative preference shares |
(1.1) | - | (1.1) | |
| Net interest payable and similar charges | (11.6) | 1.7 | (9.9) | |
| Profit on ordinary activities before taxation | 21.4 | 15.8 | 37.2 | |
| Taxation on profit on ordinary activities | 5.2(F) | (7.6) | (0.2) | (7.8) |
| Profit for the year | 13.8 | 15.6 | 29.4 | |
| Other comprehensive income | ||||
| Actuarial gains recognised in respect of retirement benefit obligations |
5.2(E) | 1.6 | 14.9 | 16.5 |
| Attributable deferred tax | 5.2(E) | (0.3) | (3.0) | (3.3) |
| Change in the fair value of the interest rate swaps | (0.6) | - | (0.6) | |
| Attributable deferred tax | 0.1 | - | 0.1 | |
| Total comprehensive income for the year | 14.6 | 27.5 | 42.1 |
| Year ended 31 March 2014 Equity |
Reversal of renewals accounting (note A) |
Grants and contributions (note B) |
IAS 23 application (note C) |
Total adjustment |
|
|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | |
| Property, plant and equipment | 5.2(A,B,C) | 108.3 | 58.9 | 3.5 | 170.7 |
| Deferred income | 5.2(B) | - | (58.9) | - | (58.9) |
| Provision for liabilities | 5.2(A,B,C) | (27.0) | 5.4 | (0.7) | (22.3) |
| Net assets | 81.3 | 5.4 | 2.8 | 89.5 |
| Year ended 31 March 2015 Equity |
Reversal of renewals accounting (note A) |
Grants and contributions (note B) |
IAS 23 application (note C) |
Total adjustment |
|
|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | |
| Property, plant and equipment | 5.2(A,B,C) | 122.8 | 61.4 | 4.3 | 188.5 |
| Deferred income | 5.2(B) | - | (61.4) | - | (61.4) |
| Provision for liabilities | 5.2(A,B,C) | (30.4) | 5.9 | (0.9) | (25.4) |
| Net assets | 92.4 | 5.9 | 3.4 | 101.7 |
| Year ended 31 March 2015 Total comprehensive income |
Reversal of renewals accounting (note A) |
Grants and contributions (note B) |
IAS 23 application (note C) |
Total adjustment |
|
|---|---|---|---|---|---|
| Notes | £m | £m | £m | £m | |
| Operating costs | 5.2(A,B,C) | (3.7) | - | - | (3.7) |
| Depreciation | 5.2(B) | 17.0 | 1.1 | 18.1 | |
| Operating profit | 13.3 | 1.1 | - | 14.4 | |
| Interest | - | - | 0.9 | 0.9 | |
| Tax | 5.2(A,B,C) | (2.6) | (0.2) | (0.2) | (3.0) |
| Profit for the financial year | 10.7 | 0.9 | 0.7 | 12.3 |
In accordance with FRS 15, infrastructure assets were treated as a single homogenous asset, which was subject to renewals accounting. Under renewals accounting, the 'Infrastructure Renewals Expenditure', the expenditure required to maintain the asset, was treated as an addition to property, plant and equipment. The depreciation charge for the infrastructure network was the equivalent to the infrastructure expenditure required to maintain the operating capability of the network averaged over 15 years.
Under IAS 16, infrastructure renewal accounting is not permitted and infrastructure assets are depreciated over their estimated useful lives. Infrastructure renewals expenditure is assessed under the IAS 16 principles and is capitalised or charged to operating expenditure accordingly.
The Company has elected for full retrospective application of IAS 16 at the date of transition to FRS 101. Accordingly, an increase of £122.8m (1 April 2014: £108.3m) was recognised in fixed assets, net of accumulated depreciation.
Operating profit for the year ended 31 March 2015 in the comparative FRS 101 Income Statement was increased by £13.3m. This increase consists of a reduction in depreciation relating to the infrastructure renewals charge of £17m and an increase in operating expenses of £3.7m.
Under treatment allowed by Statement of Standard Accounting Practice Number 4 contributions received in respect of enhancing the infrastructure network were deducted from the cost of the related tangible assets. In accordance with renewals accounting detailed above these assets were not separately depreciated.
FRS 101 requires that such contributions be shown as deferred income and amortised over the life of the underlying related asset.
At the date of transition to FRS 101, an increase of £61.4m (1 April 2014: £58.9m) was recognised in fixed assets, net of accumulated amortisation.
Operating profit for the year ended 31 March 2015 in the com parative FRS 101 Income Statement was increased by £1.1m.
IAS 23 'Borrowing Costs' (IAS 23) allows for the borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use to be capitalised as part of the cost of the respective assets.
The Company has retrospectively applied IAS 23 for all eligible assets where construction was commenced on or after 1 January 2009.
At the date of transition to FRS 101, an increase of £4.3m (1 April 2014: £3.5m) was recognised in fixed assets, net of accumulated depreciation.
Net interest cost for the year ended 31 March 2015 in the comparative FRS 101 Income Statement was reduced by £0.9m in relation to the borrowing cost capitalisation.
Under UK GAAP, computer software assets were recognised within property, plant and equipment. Upon conversion to FRS 101 these have been reclassified as intangible assets in accordance with IAS 38 'Intangible Assets'.
Under FRS 17 'Retirement Benefits' the pension scheme surplus was recognised to the extent that it was recoverable through reduced contributions in the future or refunds from the scheme. Such restriction on the level of surplus is not applicable under IAS 19 'Employee Benefits'. The amount of the pension surplus not previously recognised has been recognised on transition to FRS 101.
At the date of transition to FRS 101, the additional pension surplus of £35.0m (1 April 2014: £19.0m) has been recognised.
Under UK GAAP the pension surplus was shown net of associated deferred taxation in the Statement of Financial Position. Upon conversion to FRS 101 deferred tax included within the opening pension surplus of £2.7 (1 April 2014: £2.2m) was reclassified to provisions for liabilities.
Profit before tax for the year ended 31 March 2015 in the comparative FRS 101 Income Statement was increased by £0.5m. This increase consists of an increase in pension operating costs of £0.3m offset by pension interest income of £0.8m.
The adjustments per notes A to E above lead to different temporary taxation differences. According to the accounting policies in Note 3.10, the Company has accounted for such differences and recognised the related net deferred tax liability.
Under FRS 19, the deferred tax balance was discounted to the reporting date to reflect the time value of money. Under FRS 101, discounting of the deferred tax balance is prohibited; this has resulted in an increase of the deferred tax liability of £9.6m (1 April 2014: £12.6m).
At 31 March 2015, the £117.9m (1 April 2014: £90.4m) net impact of the adjustments per notes A to F above, has been recognised in retained earnings.
As a result of the transition to FRS 101 purchase of tangible assets for the year ended 31 March 2015 has increased by £3.7m due to the additional capitalisation of assets detailed above. This decreases operating cash flow by £3.7m.
Revenue is wholly derived from water supply and related activities in the United Kingdom. The maximum level of prices the Company may levy for the majority of water charges is controlled by the Water Services Regulation Authority (Ofwat) through the RPI +/- K price formula.
| 2016 £m |
2015 £m |
|
|---|---|---|
| Inventory recognised as an expense | 2.2 | 2.3 |
| Wages and salaries, including restructuring costs and other termination | ||
| benefits | 16.6 | 17.5 |
| Social security costs Other pension costs |
1.7 2.9 |
1.7 2.8 |
| Defined benefit scheme past service cost (note 24) | (3.1) | - |
| Total payroll cost Less capitalised as tangible assets |
18.1 (5.9) |
22.0 (8.9) |
| Net staff cost | 12.2 | 13.1 |
| Depreciation of tangible assets (note 11) | ||
| On owned assets | 17.7 | 17.6 |
| On leased assets Amortisation of intangible assets (note 12) |
1.2 2.0 |
0.8 2.0 |
| Amortisation of related deferred income (note 22) | (1.7) | (1.6) |
| Other operating charges | ||
| Research and development expenditure | 0.1 | 0.1 |
| Auditors' remuneration | 0.2 | 0.1 |
| Impairment of trade receivables (note 15) Impairment of inventory |
2.6 - |
3.7 - |
| Gain on disposal of tangible assets | - | (0.3) |
| Other charges less recoveries | 38.3 | 47.9 |
| Total operating costs | 74.8 | 85.7 |
The monthly average number of employees by activity, including directors on a service contract, (full-time equivalents) during the year was as follows:
| 2016 No. |
2015 No. |
|
|---|---|---|
| Water treatment and distribution | 252 | 276 |
| Support services | 100 | 109 |
| Administration | 80 | 78 |
| Non-appointed activities | 16 | 25 |
| 448 | 488 |
| 2016 £m |
2015 £m |
|
|---|---|---|
| Aggregate emoluments of directors, being remuneration, bonus, pension, | ||
| LTIP and benefits in kind | 0.8 | 1.1 |
| Compensation for loss of office | 0.1 | - |
| Defined contribution pension | - | - |
| Sums paid to third parties for directors' services | - | - |
| 0.9 | 1.1 |
The highest paid director during the year was Mr García; full details of his, and all other directors' emoluments, are disclosed in the Remuneration Committee Report on pages 73 to 76.
During the year the Company obtained the following services from the company's auditor and its associates:
| 2016 £'000 |
2015 £'000 |
|
|---|---|---|
| Fees payable for the audit of the Company's annual statutory financial statement |
63 | 48 |
| Fees payable for other services: | ||
| the review of the Company's interim financial statements | 14 | 8 |
| services pursuant to legislation, principally related to regulatory accounts and returns |
34 | 33 |
| agreed upon procedures work for our PR14 submission | 10 | 49 |
| review of PR 14 process | 110 | - |
| pension scheme review | 3 | 3 |
| 'PwC Inform' subscription | 1 | 1 |
| Total non-audit fees | 172 | 94 |
| 2016 | 2015 restated |
|
|---|---|---|
| Interest payable and similar charges relate to: | £m | £m |
| Bank borrowings Term loans and debentures: |
2.3 | 1.8 |
| interest charges | 9.4 | 9.3 |
| indexation and amortisation of fees and premium on loans | 1.7 | 3.7 |
| Finance leases | 0.0 | 0.2 |
| Capitalisation of borrowing cost | (0.5) | (0.9) |
| Dividends on 8.75% irredeemable cumulative preference shares | 1.1 | 1.1 |
| 14.0 | 15.2 | |
| Less interest receivable and similar income: | ||
| Interest income in respect of retirement benefit scheme (note 24) | (1.5) | (1.2) |
| Loan to Bristol Water Holdings UK Ltd – interest receivable | (4.0) | (4.0) |
| Other external investments and deposits income | (0.2) | (0.1) |
| (5.7) | (5.3) | |
| Total net interest payable and similar charges | 8.3 | 9.9 |
The rate used to determine the amount of borrowing costs eligible for capitalisation was 4.6% (2015: 4.5%), which is the weighted average interest rate of applicable borrowings
Dividends on the 8.75% irredeemable cumulative preference shares are payable at a fixed rate of 4.375% on 1 April and 1 October each year. Payment by the Company to the share registrars is made two business days earlier. The payments are classified as interest in accordance with IAS 39 "Financial Instruments – Recognition and Measurement".
| 2016 | 2015 | |
|---|---|---|
| restated | ||
| £m | £m | |
| Tax expense included in Income Statement | ||
| Current tax: | ||
| Corporation tax on profits for the year | 2.1 | 3.3 |
| Adjustment to prior periods | (0.6) | (1.0) |
| Total current tax | 1.5 | 2.3 |
| Deferred tax: | ||
| Origination and reversal of timing differences | 3.8 | 4.6 |
| Adjustment to prior periods | 0.4 | 1.0 |
| Effect of change in rate | (6.5) | (0.1) |
| Total deferred tax (note 23) | (2.3) | 5.5 |
| Tax on profit on ordinary activities | (0.8) | 7.8 |
| Tax expense income included in other comprehensive income | ||
| Current tax on defined benefit plan | (1.1) | - |
| Deferred tax: | ||
| Remeasurement of post employment benefit liability | (0.9) | 3.3 |
| Remeasurement of swap liability | (0.1) | (0.1) |
| Effect of corporation tax change in rate | (0.9) | - |
| Effect of pension change in rate | 9.8 | - |
| Total tax expense included in other comprehensive income | 6.8 | 3.2 |
The current tax relief in the OCI reflects the pension tax accounting, w hich generates an overall tax credit in the period. This credit has been allocated to the OCI to offset against the actuarial loss for the period.
A reconciliation between tax expense and the product of accounting profit multiplied by United Kingdom domestic tax rate the current tax rate for the year is lower (2014/15: same) than the standard rate of tax is as follows:
| 2016 £m |
2015 £m |
|
|---|---|---|
| Profit on ordinary activities before tax | 27.8 | 37.2 |
| At statutory income tax rate of 20% (2015: 21%) | 5.6 | 7.8 |
| Adjustments in respect to current income tax and deferred tax of previous years Non-deductible expenses for tax purposes: |
(0.2) | (0.2) |
| 8.75% irredeemable cumulative preference share | 0.3 | 0.3 |
| Effective income rate before rate change | 5.7 20.5% |
7.9 21.3% |
| Effect of tax rate change on opening balances Effect of tax rate change on current year movement |
(6.6) 0.1 |
- (0.1) |
| Total taxation expense included in income statement | (0.8) | 7.8 |
The tax rate for the current period is lower than the prior period due to changes in the UK Corporation tax rate which decreased from 21% to 20% from 1 April 2015.
Changes to reduce the UK Corporation tax rate to 19% from 1 April 2017 and to 18% from 1 April 2020 were substantively enacted on 21 October 2015 and are reflected in these financial statements.
A further change to the UK Corporation tax rate was announced in the Chancellor's budget on 16 March 2016 to reduce the main rate to 17% from 1 April 2020. As the change to 17% had not been substantively enacted at the balance sheet date its effects are not included in these financial statements .
| 2016 | 2015 |
|---|---|
| restated | |
| m | m |
| Basic earnings per ordinary share have been calculated as follows - | |
| Earnings attributable to ordinary shares £28.6 |
£29.4 |
| Weighted average number of ordinary shares 6.0 |
6.0 |
As the Company has no obligation to issue further shares, disclosure of earnings per share on a fully diluted basis is not relevant
| Freehold land, operational properties and structures |
Plant and equipment |
Infra structure assets |
Assets under construction |
Total | |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| At 1 April 2014 (restated) Cost Accumulated depreciation |
275.9 (118.9) |
36.9 (24.0) |
366.6 (62.4) |
35.6 - |
715.0 (205.3) |
| Net book amount | 157.0 | 12.9 | 304.2 | 35.6 | 509.7 |
| Year ended 31 March 2015 (restated) |
|||||
| Opening net book amount Additions |
157.0 - |
12.9 - |
304.2 22.1 |
35.6 32.8 |
509.7 54.9 |
| Disposals | (0.2) | - | - | - | (0.2) |
| Capitalisation of completed assets | 39.6 | 4.4 | 8.0 | (52.0) | - |
| Depreciation charge (note 7) | (10.6) | (3.0) | (4.8) | - | (18.4) |
| Closing net book amount | 185.8 | 14.3 | 329.5 | 16.4 | 546.0 |
| At 31 March 2015 (restated) | |||||
| Cost Accumulated depreciation |
313.4 (127.6) |
36.5 (22.2) |
396.7 (67.2) |
16.4 - |
763.0 (217.0) |
| Net book amount | 185.8 | 14.3 | 329.5 | 16.4 | 546.0 |
| Year ended 31 March 2016 Opening net book amount |
185.8 | 14.3 | 329.5 | 16.4 | 546.0 |
| Additions | - | - | - | 29.6 | 29.6 |
| Disposals | - | (0.1) | - | - | (0.1) |
| Capitalisation of completed assets Depreciation charge (note 7) |
14.7 (10.2) |
1.6 (3.5) |
12.8 (5.2) |
(29.1) - |
- (18.9) |
| Closing net book amount | 190.3 | 12.3 | 337.1 | 16.9 | 556.6 |
| At 31 March 2016 | |||||
| Cost | 317.2 | 34.7 | 409.5 | 16.9 | 778.3 |
| Accumulated depreciation | (126.9) | (22.4) | (72.4) | - | (221.7) |
| Net book amount | 190.3 | 12.3 | 337.1 | 16.9 | 556.6 |
Included within disposals are assets with a nil net book value at time of disposal. The original cost of these assets were £13.4m (2015: £6.0m).
The net book value of property, plant and equipment includes £4.8m (2015:£4.3m) of borrowing costs capitalised in accordance with IAS 23. During the year ended 31 March 2016 £0.5m (2015: £0.9m) was capitalised using a weighted average interest rate of 4.6% (2015: 4.5%). This is the weighted average interest of applicable borrowings.
Assets under construction include all expenditure on plant, vehicles and other assets up to the point at which they are brought into use upon completion
Included above at 31 March 2016 is freehold land, not subjected to depreciation in the year, of £ 1.7m (2014/15: £1.7m).
Included above at 31 March 2016 are tangible assets held under finance leases analysed by asset type as follows:
| Freehold land, operational |
||||
|---|---|---|---|---|
| properties and structures |
Plant and equipment |
Infrastructure assets |
Total | |
| £m | £m | £m | £m | |
| At 31 March 2016 | ||||
| Cost | 25.5 | 2.1 | 1.2 | 28.8 |
| Accumulated depreciation | (22.0) | (2.1) | (1.0) | (25.1) |
| Net book value | 3.5 | - | 0.2 | 3.7 |
| At 31 March 2015 (restated) | ||||
| Cost | 35.4 | 2.6 | 1.2 | 39.2 |
| Accumulated depreciation | (27.3) | (2.6) | (1.0) | (30.9) |
| Net book value | 8.1 | - | 0.2 | 8.3 |
| Computer Software |
Assets under construction |
Total | |
|---|---|---|---|
| £m | £m | £m | |
| At 1 April 2014 (restated) Cost |
26.3 | 0.4 | 26.7 |
| Accumulated amortisation | (19.8) | - | (19.8) |
| Net book amount | 6.5 | 0.4 | 6.9 |
| Year ended 31 March 2015 (restated) | |||
| Opening net book amount | 6.5 | 0.4 | 6.9 |
| Additions Disposals |
- - |
1.6 - |
1.6 - |
| Capitalisation of completed assets | 1.6 | (1.6) | - |
| Amortisation charge (note 7) | (2.0) | - | (2.0) |
| Closing net book amount | 6.1 | 0.4 | 6.5 |
| At 31 March 2015 (restated) | |||
| Cost | 25.3 | 0.4 | 25.7 |
| Accumulated depreciation | (19.2) | - | (19.2) |
| Net book amount | 6.1 | 0.4 | 6.5 |
| Year ended 31 March 2016 (restated) | |||
| Opening net book amount | 6.1 | 0.4 | 6.5 |
| Additions Disposals |
- - |
0.5 - |
0.5 - |
| Capitalisation of completed assets | 0.4 | (0.4) | - |
| Depreciation charge (note 7) | (2.0) | - | (2.0) |
| Closing net book amount | 4.5 | 0.5 | 5.0 |
| At 31 March 2016 | |||
| Cost Accumulated depreciation |
24.2 (19.7) |
0.5 - |
24.7 (19.7) |
| Net book amount | 4.5 | 0.5 | 5.0 |
Included within disposals are assets with a nil net book value at time of disposal. The original cost of these assets were £1.4m (2015: £2.6m).
Balance at 31 March 2016 and 31 March 2015 68.5
Other investments comprise loans advanced to Bristol Water Holdings UK Limited. The details are as follows:
| Principal outstanding £m |
Loan repayment date |
Fixed interest Rate* |
Loan advance date |
Agreement date |
|---|---|---|---|---|
| 47.0 | 30 September 2033 | 6.042% | 12 February 2004 | 4 December 2003 |
| 21.5 | 30 September 2032 | 5.550% | 13 July 2005 | 10 June 2005 |
* Interest rates for the above loans to parent company w ere based on the Company's long-term loan interest rates at the time of issuance.
Stocks comprise consumable stores. The replacement cost of stocks is not considered to be materially different from their carrying value in the balance sheet.
| Trade and other receivables comprise: | 2016 £m |
2015 £m |
|---|---|---|
| Trade receivables (a) | 29.8 | 30.2 |
| Less bad debt provision (a) | (16.8) | (16.2) |
| 13.0 | 14.0 | |
| Amounts owed by group and associated companies (b) | 1.2 | 1.1 |
| Other receivables | 2.2 | 1.6 |
| Prepayments and accrued income | 13.6 | 17.8 |
| Corporation tax recoverable | 0.7 | - |
| 30.7 | 34.5 | |
| (a) The aging of net trade receivables was: | ||
| 2016 | 2015 | |
| £m | £m | |
| Past due by 0-30 days | 2.6 | 3.2 |
| Past due by 31-120 days | 1.7 | 2.0 |
| Past due by more than 120 days | 8.7 | 8.8 |
| 13.0 | 14.0 | |
| Bad debt provision: | ||
| 2016 | 2015 | |
| £m | £m | |
| At 1 April | 16.2 | 15.3 |
| Provision for trade receivables impairment (note 7) | 2.6 | 3.7 |
| Trade receivables written off during the year as uncollectible | (2.0) | (2.8) |
| At 31 March | 16.8 | 16.2 |
£m
As at 31 March 2016, based on a review of collection rates, £16.8m (2015: £16.2m) of trade receivables were considered impaired and have been provided for.
In accordance with IAS39, the company has created a general provision that cannot be specifically attributed to the trade receivables that are impaired. The Company's policy is to consider the trade receivables impairment to be allocated on a collective basis and only impaired for the purposes of IFRS7 disclosures when the loss can be specifically identified with the trade receivables. The Company is required to continue providing residential customers with water regardless of payment
Other receivables at 31 March 2016 and 31 March 2015 have not been impaired.
(b) The sum of £0.4m (2014/15: £0.4m) is included within the heading "Due from group and associated companies" in respect of amounts advanced to BWBSL, a joint venture company between Bristol Water Holdings Limited, a parent company, and Wessex Water Services Limited, to fund the purchase of tangible assets. This amount has no fixed repayment date.
For the purpose of the statement of cash flow, cash and cash equivalents comprise the following:
| 2016 £m |
2015 £m |
|
|---|---|---|
| Cash and cash equivalents | 18.0 | 10.6 |
| 18.0 | 10.6 | |
| Bank overdrafts | - | (0.1) |
| 18.0 | 10.5 |
| 2016 | 2015 | |
|---|---|---|
| £m | £m | |
| Current portion of long-term borrowings | ||
| Finance leases (note 19, 26) | 0.4 | 0.4 |
| Other creditors | ||
| Bank overdraft | - | 0.1 |
| Receipts in advance | 11.9 | 13.1 |
| Trade creditors | 8.9 | 14.4 |
| Amounts owed to associates | 1.7 | 1.3 |
| Other taxation and social security | 0.7 | 0.9 |
| Corporation tax payable | - | 1.0 |
| Payments received on account | 1.7 | 0.9 |
| Accruals and deferred income | 8.1 | 10.9 |
| 33.0 | 42.6 | |
| Total Creditors falling due within one year | 33.4 | 43.0 |
All amounts owed to associates are unsecured, interest free and repayable on demand.
| 2016 | 2015 | |
|---|---|---|
| Amounts falling due after more than one year | £m | £m |
| Bank and other term loans – secured | 70.0 | 70.0 |
| Finance leases – secured (note 19, 26) | 1.9 | 1.7 |
| Net unamortised premiums arising on issue of term loans | 0.3 | 0.3 |
| Interest rate swaps | 2.0 | 1.8 |
| 74.2 | 73.8 | |
| Amounts falling due after more than five years | ||
| Bank and other term loans – secured | 230.6 | 228.8 |
| Net unamortised premiums arising on issue of term loans | 2.0 | 2.0 |
| Finance leases – secured (note 19, 26) | - | 0.5 |
| 232.6 | 231.3 | |
| Irredeemable | ||
| Debentures | 1.6 | 1.6 |
| 8.75% irredeemable cumulative preference shares (note 25) | 12.5 | 12.5 |
| 14.1 | 14.1 | |
| Total | 320.9 | 319.2 |
None of the bank and other term loans included within creditors are payable in instalments.
The majority of the Company's financial liabilities are secured. The security is given:
In respect of the Company
Prior to enforcement of the security by the lender, the Company is entitled to exercise all its rights, and perform its obligations in relation to the charged assets in accordance with the provisions set out in the Company's Security Trust and Intercreditor Deed ("STID").
In respect of Bristol Water Core Holdings Limited (the immediate parent of the Company), as security for the obligations of the Company:
a fixed charge over its shares in the Company together with a floating charge over the whole of its undertaking.
| Interest rate % |
Maturity | Total 2016 £m |
Total 2015 £m |
|
|---|---|---|---|---|
| Current loans and borrowings | ||||
| Finance leases | 3.64% | 10 May 2016 | 0.4 | 0.4 |
| Total current loans and borrowings | 0.4 | 0.4 | ||
| Non current loans and borrowings | ||||
| £10,000,000 bank loan | 1.29% | 7 Dec 2017 | 10.0 | 10.0 |
| £10,000,000 bank loan | 5.725% | 7 Dec 2017 | 10.0 | 10.0 |
| £50,000,000 bank loan | 2.404% | 29 Nov 2019 | 50.0 | 50.0 |
| Interest rate swap for £50,000,000 bank loan | 1.504% | 29 Nov 2019 | 1.3 | 1.2 |
| Interest rate swap for £10,000,000 bank loan | 5.025% | 7 Dec 2017 | 0.7 | 0.6 |
| Finance leases | 3.84% | 10 May 2020 | 1.9 | 2.2 |
| £127,835,000 term loan | 3.635%* | 30 Sept 2032 | 127.8 | 126.6 |
| £57,500,000 term loan | 6.01%* | 30 Sept 2033 | 57.5 | 57.5 |
| £45,302,000 term loan | 2.701% | 25 Mar 2041 | 45.3 | 44.7 |
| Net unamortised premiums* | 2.3 | 2.3 | ||
| £1,405,218 Consolidated debentures | 4.00% | irredeemable | 1.4 | 1.4 |
| £36,740 perpetual debentures | 4.25% | irredeemable | - | - |
| £54,875 perpetual debentures | 4.00% | irredeemable | 0.1 | 0.1 |
| £72,900 perpetual debentures | 3.5% | irredeemable | 0.1 | 0.1 |
| £12,500,000 cumulative preference shares | 8.75% | irredeemable | 12.5 | 12.5 |
| Total non- current loans and borrowings | 320.9 | 319.2 | ||
| Borrowing facilities | ||||
| Unutilised borrowing facilities are as follows: | ||||
| 2016 | 2015 | |||
| £m | £m | |||
| Expiring in August 2017 | 50.0 | 50.0 | ||
| Expiring in December 2019 | 20.0 | 20.0 |
| 70.0 | 70.0 |
|---|---|
The facilities are floating rate and incur non-utilisation fees at market rates.
The fair values of the cash deposits, trade receivables, trade creditors, loans and overdrafts with a maturity of less than one year are assessed to approximate to their book values.
In the case of bank loans and other loans due in more than one year the fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate available to the Company for similar financial instruments.
The fair value of the Company's debentures has been calculated by discounting the expected cash flows at prevailing market rates including an estimated margin over gilts. Fixed rate loans from Artesian Finance II plc have been discounted by reference to the UK Government fixed rate gilt 2032 plus an estimated margin. Indexlinked loans from Artesian Finance plc have been discounted by reference to the UK Government index-linked gilt 2030 plus an estimated margin.
The Company's preference shares (shown as debt within these financial statements) are listed on the London Stock Exchange and their fair value is assumed to be their quoted market price.
The long-term loans to Bristol Water Holdings UK Limited have been discounted by reference to the UK Government fixed rate gilt 2032 plus an estimated margin.
At 31 March 2016, the Company was party to two interest rate swaps with notional values of £10m and £50m. These swaps were effective from 22 October 2008 and 3 December 2014 and will expire on 7 December 2017 and 29 November 2019 respectively. The fair values of the interest rate swaps have been calculated by discounting the expected future cash flows by reference to the implied future 6 month LIBOR and 3 months LIBOR respectively, and hence the swaps are valued as Level 3 instrument as set out by IFRS 13 'Fair value measurement'.
In accordance with IFRS9 'Financial Instruments', the liability arising under the swap agreements was recognised in these financial statements, as follows:
| Liability: | 2016 £m |
2015 £m |
|---|---|---|
| Due after one year | 2.0 2.0 |
1.8 1.8 |
In accordance with IFRS 9 Financial Instruments the Company has reviewed all material contracts for embedded derivatives that are required to be separately accounted for if they do not meet the requirements set out in the standard. As a result of this review no embedded derivatives were identified.
Although the Company does not intend to trade in any financial instruments, the following tables provide a comparison, by category, of the carrying amounts and the fair value of the Company's financial assets and financial liabilities. Where available, market values have been used to determine fair values. Where market values are not available, fair values have been calculated by discounting expected cash flows at the Company's current incremental borrowing rates for borrowings of similar types and maturities.
| 31 March 2016 | 31 March 2015 | |||
|---|---|---|---|---|
| Carrying value |
Fair value | Carrying value |
Fair value | |
| £m | £m | £m | £m | |
| Primary financial instruments issued to finance the Company Long-term borrowings |
(306.4) | (395.8) | (304.9) | (403.2) |
| 8.75% irredeemable cumulative preference shares |
(12.5) | (18.0) | (12.5) | (19.4) |
| Primary financial instruments issued to finance Bristol Water Holdings UK Limited |
||||
| Long-term loans | 68.5 | 86.7 | 68.5 | 88.9 |
| Derivative financial instruments held to manage the interest rate profile: |
||||
| Interest rate swaps | (2.0) | (2.0) | (1.8) | (1.8) |
| (252.4) | (329.1) | (250.7) | (335.5) |
The movement in the comparison of the fair value of the long-term borrowings to book value is due to fluctuations in long-term interest rates.
| 31 March 2016 | 31 March 2015 | |||
|---|---|---|---|---|
| Carrying value |
Fair value | Carrying value |
Fair value | |
| £m | £m | £m | £m | |
| Financial assets | ||||
| Cash and cash equivalents | 18.0 | 18.0 | 10.6 | 10.6 |
| Trade and other receivables | 30.7 | 30.7 | 34.5 | 34.5 |
| Financial liabilities | ||||
| Current portion of long-term borrowings | (0.4) | (0.4) | (0.4) | (0.4) |
| Other creditors | (33.0) | (33.0) | (42.6) | (42.6) |
| 15.3 | 15.3 | 2.1 | 2.1 |
The Company's main financial instruments comprise:
The Company has also entered into interest rate swaps to manage the interest rate risk arising from its sources of finance. It is the Company's policy not to trade in financial instruments.
The Company's significant debt financing exposes it to a variety of financial risks that include the effect of changes in debt market prices, credit risks, liquidity and interest rates. The Company has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Company.
The Board is responsible for setting the financial risk management policies applied by the Company. The policies are implemented by the finance department. The finance department has a policies and procedures manual that sets out specific guidelines to manage interest rate risk, credit risk and the use of financial instruments to manage these risks.
The financial assets include cash at bank and cash deposits which are all denominated in sterling. During the year cash and cash deposits were placed with banks for either a fixed term or repayable on demand earning interest at market rates. There are also interest-bearing fixed rate loans totaling £68.5m (2014/15: £68.5m) to Bristol Water Holdings UK Limited.
The financial liabilities consist of interest-bearing loans, debentures, finance leases and 8.75% irredeemable cumulative preference shares. The Company uses interest-rate swaps as hedging instruments to hedge cash flows in respect of future interest payments, which has the effect of increasing the proportion of fixed interest debt.
The Company's practice is to maintain the majority of its net debt on a fixed or a fixed margin above movements in RPI basis. At the year-end 40%* (2014/15: 40%**) of the Company's gross financial liabilities, excluding the 8.75% irredeemable cumulative preference shares, were at fixed rates. 95% (2014/15: 96%) of the Company's gross financial liabilities, excluding the 8.75% irredeemable cumulative preference shares, were at fixed or index-linked rates. The residues were at floating rates.
The Company's current intention is to maintain a future interest rate management profile consisting of financial liabilities at either fixed or index-linked rates amounting to 70% or more of such liabilities. The balance between fixed or index-linked, and floating interest rate liabilities will be kept under review, and is dependent on the availability of such resources in the financial markets.
The carrying value of the Company's index-linked borrowings is exposed to changes in RPI. The Company's RCV and water charges are also linked to RPI. Accordingly index-linked debt partially hedges the exposure to changes in RPI and delivers a cash flow benefit, as compensation for the indexation is provided through adjustment to the principal rather than in cash.
* Variable interest rate loans totalling £60m, covered by interest rate swaps, have been considered as fixed interest rate loans for the calculation of this percentage.
** Variable interest rate loan totalling £10m, covered by interest rate swap, was considered as fixed interest rate loan for the calculation of this percentage.
The following table demonstrates the sensitivity to reasonably possible changes in interest rates, with all other variables held constant, on the Company's profits.
The sensitivity analysis includes the effect on all financial instruments exposed to changes in interest rate.
| 31 March 2016 | 31 March 2015 | |||
|---|---|---|---|---|
| Profit before tax £m |
Profit after tax £m |
Profit before tax £m |
Profit after tax £m |
|
| Movement in interest rate of 100bp | 0.1 | 0.1 | 0.1 | 0.1 |
The year-end carrying value of index-linked debt held by the Company is as follows:
| 2016 £m |
2015 £m |
|
|---|---|---|
| Index-linked debt | 173.1 | 171.3 |
The following table shows the illustrative effect on the Company's profits of changes in RPI in relation to its index-linked debt.
| 31 March 2016 | 31 March 2015 | |||
|---|---|---|---|---|
| Profit before tax £m |
Equity £m |
Profit before tax £m |
Equity £m |
|
| Movement in Retail Price Index by 1% | 1.7 | 1.4 | 1.7 | 1.3 |
The Company is required by the Water Industry Act 1991 to supply water to all potential customers in its licensed area. In the event of non-payment by commercial customers, but not domestic customers, the Company has a right of disconnection. For all customers the Company has implemented policies and procedures designed to assess the risk of further non-payment and recoup debts.
Under the terms of the STID, cash at bank and cash deposits are placed with banks with a minimum of Moody's P-1 and Standard & Poors A-1 credit ratings.
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. At 31 March the maximum exposure to credit risk was as follows:
| 2016 £m |
2015 £m |
|
|---|---|---|
| Long-term loans Cash and cash equivalents |
68.5 18.0 |
68.5 10.5 |
| Trade and other receivables, net of bad debt provisions made | 30.7 | 34.5 |
| 117.2 | 113.5 |
There is no collateral held as security in respect of the above financial assets.
It is the Company policy to maintain continuity of funding. At the year-end 76% (2014/15: 77%) of its financial liabilities, including 8.75% irredeemable cumulative preference shares, mature after five years or are irredeemable.
The Company actively maintains a mixture of long-term and short-term committed facilities that are designed to provide sufficient funds for operations.
The Company has a £20m facility expiring in December 2019, and a £50m facility expiring in August 2017. Both the facilities are floating rate and incur non-utilisation fees at market rates.
Under the terms of the STID the Company is required to maintain sufficient funds in a nominated account to cover estimated debt service payments arising during the following year. These funds, currently amounting to approximately £5.4m (2014/15: £5.7m), are therefore not available for other operational use or distribution to shareholders.
The table below details the Company's remaining contractual payments until maturity for its non -derivative financial liabilities. The table is based on the undiscounted cash flows, and includes estimates of future interest payments and loan indexation on financial liabilities.
| Year ended 31 March 2016 |
Due within one year |
Between one and two years |
Between two and five years |
After five years |
Total |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Trade creditors | 8.9 | - | - | - | 8.9 |
| Due to group and associated companies |
1.7 | - | - | - | 1.7 |
| Other taxation and social security |
0.7 | - | - | - | 0.7 |
| Accruals | 2.0 | - | - | - | 2.0 |
| Interest bearing loans and related interest |
11.6 | 31.5 | 82.6 | 450.2 | 575.9 |
| 24.9 | 31.5 | 82.6 | 450.2 | 589.2 |
| Year ended 31 March 2015 |
Due within one year |
Between one and two years |
Between two and five years |
After five years |
Total |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Trade creditors | 14.4 | - | - | - | 14.4 |
| Due to group and associated companies |
1.3 | - | - | - | 1.3 |
| Other taxation and social security |
0.9 | - | - | - | 0.9 |
| Corporation tax payable | 1.0 | - | - | - | 1.0 |
| Accruals | 3.1 | - | - | - | 3.1 |
| Interest bearing loans and related interest |
11.6 | 11.6 | 103.4 | 410.5 | 537.1 |
| 32.3 | 11.6 | 103.4 | 410.5 | 557.8 |
The Company has entered into two interest rate swaps with notional values of £10m and £50m. These were effective from 22 October 2008 and 3 December 2014 respectively. The Company uses interest-rate swaps as hedging instruments to hedge cash flows in respect of future interest payments, and accordingly hedge accounting is applied as mentioned in note 3.13.
The table below details the Company's remaining contractual payments and receipts until maturity for its interest rate swaps. The table is based on the forecast undiscounted cash flows on its derivative financial liabilities based on the contractual settlement dates.
| Year ended 31 March 2016 |
Due within one year |
Between one and two years |
Between two and five years |
After five years |
Total |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Forecast receipts under the interest rate swaps |
0.4 | 0.4 | 0.8 | - | 1.6 |
| Contractual payments under the interest rate swaps |
(1.3) | (1.1) | (1.3) | - | (3.7) |
| Net forecast cash outflow | (0.9) | (0.7) | (0.5) | - | (2.1) |
| Year ended 31 March 2015 |
Due within one year |
Between one and two years |
Between two and five years |
After five years |
Total |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Forecast receipts under the interest rate swap |
0.4 | 0.6 | 2.1 | - | 3.1 |
| Contractual payments under the interest rate swap |
|||||
| (1.3) | (1.3) | (2.3) | - | (4.9) | |
| Net forecast cash outflow | (0.9) | (0.7) | (0.2) | - | (1.8) |
Under the terms of its principal debt agreements the Company is required to comply with covenants relating to minimum levels of interest cover and to maximum levels of net debt in relation to regulatory capital value. Failure to comply may result in various restrictions being imposed upon the Company. Risk is minimised through continuous monitoring of the relevant ratios in both emerging and forecast results, and by close control of operating cash flows and capital investment programmes.
| 2016 | 2015 restated |
|
|---|---|---|
| £m | £m | |
| Net book value, beginning of year Additions |
69.2 4.2 |
67.2 3.6 |
| Amortisation charge for the year (note 7) | (1.7) | (1.6) |
| Net book value, end of year | 71.7 | 69.2 |
| Current | 2016 1.7 |
2015 1.7 |
|---|---|---|
| Non-current | 70.0 | 67.5 |
| 71.7 | 69.2 |
| 2015 | ||
|---|---|---|
| restated | ||
| £m | £m | |
| Provision for deferred tax | 58.9 | 70.4 |
| Provision for staff redundancies* | 0.2 | 1.1 |
| 59.1 | 71.5 | |
| Provision for deferred tax comprises: | ||
| Accelerated capital allowances and capital element of | ||
| finance leases | 64.0 | 67.5 |
| Deferred income | (4.7) | (5.9) |
| Short-term timing differences | - | (0.1) |
| Retirement benefit obligations | - | 9.2 |
| Interest rate swaps | (0.4) | (0.3) |
| Net deferred tax liability | 58.9 | 70.4 |
| Reflected in the statement of financial position as follows: | ||
| Provisions | 58.9 | 61.2 |
| Retirement benefit obligations | - | 9.2 |
| Deferred tax liabilities net | 58.9 | 70.4 |
| Reconciliation of deferred tax liabilities net: | 2016 | 2015 |
| £m | £m | |
| Opening balance as at 1 April | 70.4 | 61.7 |
| Tax (expense)/income during the year recognised in profit and loss |
(2.3) | 5.5 |
| Tax (expense)/income during the year recognised in other comprehensive income |
7.9 | 3.2 |
| Reclassification of pension deferred tax (note 24) | (17.1) | - |
| Closing balance as at 31 March | 58.9 | 70.4 |
* In the prior y ear a prov ision of £1.1m was made f or the employ ee related costs of redundancies announced in March 2015. This is expected to be utilised in the current y ear.
| Reconciliation of staff redundancies: | 2016 | 2015 |
|---|---|---|
| Opening balance as at 1 April | £m 1.1 |
£m - |
| Arising during in the year | 0.1 | 1.1 |
| Utilised Closing balance as at 31 March |
(1.0) 0.2 |
- 1.1 |
Pension arrangements for employees are partly provided through the Company's membership of the Water Companies' Pension Scheme (WCPS), which provides defined benefits based on final pensionable pay. The Company's membership of WCPS is through a separate section of the scheme. The assets of the section are held separately from those of the Company and are invested by discretionary fund managers appointed by the trustees of the scheme. The employees in the section stopped earning additional defined benefit pensions on 31 March 2016. All eligible employees were offered membership of a stakeholder pension scheme.
In addition to providing benefits to employees and ex-employees of the Company, the section provides benefits to former employees of the Company who transferred to BWBSL. The majority of the section assets and liabilities relate to the Company employees and ex-employees.
The financial position of the section is determined by an independent actuary (Lane, Clark & Peacock LLP).
The details of the last triennial valuation and current update on the funding position are provided on page 28 in the Strategic Report.
From 1st April 2016, there are no anticipated employer contributions to the scheme. Subsequent to the year end the Trustees have agreed that deficit contributions, previously of £0.4m per annum, will cease on 30th June 2016.
The risks of the scheme are as follows:
The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. The plan holds a significant proportion of LDI funds which are expected to outperform corporate bonds in the long-term while providing volatility and risk in the short term.
A decrease in corporate bond yields will increase plan liabilities, although this will be partially offset by an increase in the value of the plan's bond holdings.
The majority of the plan's obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the plan's liabilities.
The pension obligations are linked to inflation and higher inflation will lead to higher liabilities (although, in most cases, caps on the level of inflationary increases are in place to protect the plan against extreme inflation). The majority of the plan's assets are either unaffected by (fixed interest bonds) or loosely correlated with (equities) inflation, meaning that the effect on assets of an increase in inflation will also reduce the surplus.
The value of the pension scheme surplus has been restricted by an income tax deduction of 35% under UK tax legislation. An increase in the income tax rate will reduce the net pension scheme surplus.
The formal actuarial valuation of the Company's section of the WCPS as at 31 March 2014 was updated to 31 March 2016, by Lane Clark & Peacock LLP, using the following major assumptions in accordance with IAS 19 (Employee Benefits):
| 2016 | 2015 | |
|---|---|---|
| Assumptions: | ||
| RPI Inflation | 3.1% | 3.2% |
| CPI Inflation | 2.1% | 2.2% |
| Pension increases in payment (CPI) | 2.3% | 2.2% |
| Pension increases in payment (CPI) | 2.2% | 2.2% |
| Salary increases | - | 3.7% |
| Discount rate | 3.3% | 3.2% |
Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in the UK. These assumptions translate into an average life expectancy in years for a pensioner retiring at age 65:
| 2015 |
|---|
| 27.7 |
| 29.6 |
| 30.6 |
| 32.1 |
| 2016 28.7 30.6 32.2 33.5 |
| Pension scheme surplus at 1 April 2014 (restated) | Assets | Liabilities | Total |
|---|---|---|---|
| £m | £m | £m | |
| 175.1 | (147.1) | 28.0 | |
| Current service cost | - | (1.4) | (1.4) |
| Section expenses | (0.3) | - | (0.3) |
| Interest income / (expense) (note 8) | 7.4 | (6.2) | 1.2 |
| Remeasurements: Return on plan assets, excluding amounts included in interest expense/(income) Changes in financial assumptions Changes in demographic assumptions |
32.7 - - |
- (18.3) 1.1 |
32.7 (18.3) 1.1 |
| Experience adjustments on obligation | - | 1.0 | 1.0 |
| 32.7 | (16.2) | 16.5 | |
| Benefits paid | (6.6) | 6.6 | - |
| Employer contributions | 2.3 | - | 2.3 |
| Employee additional contributions | 0.4 | (0.4) | - |
| Pension scheme surplus at 31 March 2015 (restated) | 211.0 | (164.7) | 46.3 |
| Pension scheme surplus at 1 April 2015 | 211.0 | (164.7) | 46.3 |
|---|---|---|---|
| Current service cost | - | (1.4) | (1.4) |
| Section expenses | (0.3) | - | (0.3) |
| Interest income / (expense) (note 8) | 6.7 | (5.2) | 1.5 |
| Past service cost (note 7) | - | 3.1 | 3.1 |
| Remeasurements: | |||
| Return on plan assets, excluding amounts included in | |||
| interest expense/(income) | (3.7) | (3.7) | |
| Changes in financial assumptions | - | 2.8 | 2.8 |
| Changes in demographic assumptions | - | (4.4) | (4.4) |
| Experience adjustments on obligation | - | 3.1 | 3.1 |
| (3.7) | 1.5 | (2.2) | |
| Benefits paid | (6.8) | 6.8 | - |
| Employer contributions | 2.0 | - | 2.0 |
| Employee additional contributions | 0.3 | (0.3) | - |
| Pension scheme surplus at 31 March 2016 | 209.2 | (160.2) | 49.0 |
The past service cost shown above consists of an increase in the pension scheme obligations due to a discretionary pension increase to scheme members and a curtailment gain upon closure of the scheme to future accrued benefits.
| 2016 | 2015 | |
|---|---|---|
| Total amount recognised on the statement of financial position: | £m | £m |
| Fair value of plan assets | 209.2 | 211.0 |
| Pension scheme obligation | (160.2) | (164.7) |
| Pension scheme surplus | 49.0 | 46.3 |
| Less: restriction of surplus | (17.1) | - |
| Net pension scheme surplus | 31.9 | 46.3 |
In accordance with IAS19 'Employee Benefits' the value of the net pension scheme surplus that can be recognised in the balance sheet is restricted to the present value of economic benefits available in the form of refunds from the scheme or reductions in future contributions. As defined under IFRIC 14, the Company believes that it has an unconditional right to a refund of surplus and that the gross pension surplus can be recognised.
This benefit is only available as a refund as no additional defined pension benefits are being earned. Under UK tax legislation an income tax deduction of 35% is applied to a refund from a UK pension scheme, before it is passed to the employer. This tax deduction has been shown above as a restriction to the value of the net pension scheme asset that can be recognised for this scheme.
The sensitivity of the balance sheet surplus at 31 March 2016
| Change in | Increase in | Decrease in | |
|---|---|---|---|
| assumption | assumption | assumption | |
| £m | £m | ||
| Discount rate | 0.5% | (11.8) | 13.4 |
| Inflation assumption (CPI) | 0.1% | 10.8 | (9.3) |
| Life expectancy | 1 year | 4.7 | (4.7) |
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur and changes in some of the assumptions may be correlated.
The methods and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous period.
| £m Current service cost 1.4 Past service cost (note 7) (3.1) Interest cost (note 8) (1.5) Section expenses 0.3 (2.9) |
2016 | 2015 |
|---|---|---|
| (restated) | ||
| £m | ||
| 1.4 | ||
| - | ||
| (1.2) | ||
| 0.3 | ||
| 0.5 |
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| (restated) | ||||||||
| Quoted | Unquoted | 2016 | % | Quoted | Unquoted | 2015 | % | |
| £m | £m | |||||||
| Equities | 4.4 | - | 4.4 | 2.1 | 10.0 | - | 10.0 | 4.7 |
| Diversified growth funds | 3.0 | 3.2 | 6.2 | 2.9 | 3.2 | 3.4 | 6.6 | 3.1 |
| Bonds | - | - | - | - | 187.2 | - | 187.2 | 88.7 |
| LDI funds | 136.2 | - | 136.2 | 65.1 | - | - | - | - |
| Liquidity funds | 54.5 | - | 54.5 | 26.0 | - | - | - | - |
| Cash | - | 0.8 | 0.8 | 0.4 | - | 0.1 | 0.1 | 0.1 |
| Emerging markets multi-asset | ||||||||
| funds | 3.5 | - | 3.5 | 1.7 | 3.4 | - | 3.4 | 1.6 |
| High yield bonds | 3.7 | - | 3.7 | 1.8 | 3.7 | - | 3.7 | 1.8 |
| 205.3 | 4.0 | 209.3 | 100 | 207.5 | 3.5 | 211.0 | 100 |
| The return on the plan assets was: | 2016 | 2015 |
|---|---|---|
| (restated) | ||
| £m | £m | |
| Interest income | 6.7 | 7.4 |
| Remeasurements | (3.7) | 32.7 |
| Total return on plan assets | 3.0 | 40.1 |
The current weighted average duration of the expected benefit payments from the Section is around 15 years.
The Companyoperates defined contribution retirement benefit schemes for employees. Following the closure of the defined benefit scheme all affected employees have been offered membership of this scheme. The total cost charged to income of £1.2m (2014/15: £1.1m) represents contributions payable to the scheme. As at 31 March 2016 and 31 March 2015, all contributions due have been paid over to the scheme .
The amount recognised as an expense for the defined contribution scheme was:
| 2016 | 2015 | |
|---|---|---|
| £m | £m | |
| Current period contributions | 1.2 | 1.1 |
Ordinary shares of £1 each
| Issued and fully paid | 2016 No. |
2016 £m |
|---|---|---|
| At 1 April | 5,998,025 | 6.0 |
| Issued during the year | - | - |
| At 31 March | 5,998,025 | 6.0 |
All shares rank pari passu in all respects.
Preference shares of £1 each
| Issued and fully paid | 2016 No. |
2016 £m |
|---|---|---|
| At 1 April | 12,500,000 | 12.5 |
| Issued during the year At 31 March |
- 12,500,000 |
- 12.5 |
The preference shares are classified as liabilities in the balance sheet
The 8.75% irredeemable cumulative preference shares, which do not normally carry any voting rights, were issued in 1992 at £1 per share. Shareholders are entitled to receive dividends at 8.75% per annum on the par value of these shares on a cumulative basis; these dividends are payable half yearly on 1 April and 1 October. On winding up, the preference shareholders rank ahead of ordinary shareholders and are entitle d to receive £1 per share and any dividends accrued but unpaid in respect of their shares. In the event that dividends on the preference shares are in arrears for six months or more, holders of the preference shares become entitled to vote at general meetings of members.
The authorised preference share capital consists of 14,000,000 8.75% irredeemable cumulative preference shares of £1 each.
Capital commitments at 31 March 2016 contracted for but not provided were £5.1m (2014/15: £6.0m).
The future minimum finance lease payments are as follows:
| 2016 £m |
2015 £m |
|
|---|---|---|
| Within one year | 0.4 | 0.4 |
| Between one and five years | 2.0 | 1.9 |
| After five years | - | 0.5 |
| Total gross payments | 2.4 | 2.8 |
| Impact of finance charges | (0.1) | (0.2) |
| Carrying value of liability | 2.3 | 2.6 |
The above payments relate to the lease of plant and equipment which ends in May 2020. There is no option to purchase at the end of the lease.
Throughout the year, related parties include members and joint ventures of the Bristol Water Holdings UK Limited group of companies, members of Capstone Infrastructure Corporation Group, members of the Agbar Suez Environnement Company S.A group of companies, members of Itochu Corporation, and key management personnel.
The principal related parties are:
CSE Water UK Limited, registered in England and Wales, whose year-end is 31 December, and is the Company's ultimate UK holding company and is a subsidiary of Capstone.
Bristol Water Holdings UK Limited (BWHUK), registered in England and Wales, whose year-end is 31 December. BWHUK is a subsidiary of Capstone.
Bristol Wessex Billing Services Limited (BWBSL), registered in England and Wales, whose year-end is 31 March. The joint venture interest is held by Bristol Water Holdings Limited, an intermediate holding company within the BWHUK group, which owns 100 class 'B' shares in the Company, representing a hold ing of 50% of the voting and equity rights of the Company. BWBSL is a joint venture undertaking between Bristol Water Holdings Limited and Wessex Water Services Limited, and provides meter reading, billing, debt recovery and customer contact management services to this company and Wessex Water Services Limited, under a cost sharing arrangement.
Agbar Serco Technology Solutions Limited (ASTS), registered in England and Wales, whose year-end is 31 December. The joint venture company is owned 50% by Aqualogy Solutions Limited, a subsidiary and intermediate holding company within the Agbar group, and 50% by Serco UK Limited. ASTS provides IT consultancy services, and security asset management services. Following a competitive tendering process, ASTS is contracted to provide IT maintenance and development services to the Company.
Suez Advanced Solutions UK Limited (Previously Aqualogy Environment Limited), registered in England and Wales, whose year-end is 31 December. This company is a subsidiary within the Agbar group and is engaged in providing infrastructure asset management services to the water industry. The principal activities include a patented process called "Ice Pigging" which uses ice to clean pipes. AEL also provides sub-licences to customers for the use of Ice Pigging technology in other countries.
During the year the Company entered into trading transactions with related parties totalling:
| Sales of goods and services |
Purchases of goods and |
||||
|---|---|---|---|---|---|
| 2016 £m |
2015 £m |
services 2016 £m |
2015 £m |
||
| Members of the BWHUK group BWHUK management charges |
- | - | - | - | |
| Members of the Suez group Suez Advanced Solutions Holdings UK Limited (previously Aqualogy Solutions and Technologies UK Limited) |
- | - | 0.1 | 0.1 | |
| Suez Advanced Solutions UK Limited (previously Aqualogy Environment Limited) |
- | - | 0.1 | 0.6 | |
| Joint ventures of the BWHUK group BWBSL |
|||||
| - management charges | - | - | 3.0 | 2.9 | |
| - capital expenditure - other recharges |
- - |
- - |
0.1 0.2 |
0.1 0.4 |
|
| Joint ventures of the Agbar group ASTS |
|||||
| - management charges | - | - | - | 0.8 | |
| - capital expenditure | - | - | - | 0.3 | |
| - other | - - |
- - |
- 3.5 |
0.2 5.4 |
|
At the year end the balances held with related parties were:
| Amounts due from | Amounts due to | |||
|---|---|---|---|---|
| 2016 £m |
2015 £m |
2016 £m |
2015 £m |
|
| Joint ventures of the BWHUK group BWBSL |
0.8 | 0.7 | 1.2 | 0.9 |
| Joint ventures of the Agbar group ASTS |
- | - | - | - |
| 0.8 | 0.7 | 1.2 | 0.9 |
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received. No provisions have been made, or are considered necessary, for doubtful debts in respect of the amounts due from related parties.
Information about the remuneration of individual directors is provided in the audited part of the Remuneration Committee Report on pages 65 to 70.
The immediate parent company is Bristol Water Core Holdings Limited, a company incorporated in England and Wales.
As at 31 March 2016, the ultimate parent company and controlling party was considered by the directors to be Capstone Infrastructure Corporation, a company incorporated in Canada, due to its majority ownership of CSE Water UK Limited. On 29 April 2016, Capstone Infrastructure Corporation was successfully sold to iCON Infrastructure Partners III, LP, who became the ultimate parent company and controlling party.
As at 31 March 2016 the Company was ultimately owned 50% by Capstone, 30% by Suez (previously Sociedad General de Aguas de Barcelona S.A. (Agbar)) and 20% by Itochu Corporation, Japan.
The smallest and largest group in which this company is consolidated is Capstone Infrastructure Corporation and copies of its consolidated annual report are available from 155 Wellington Street West, Suite 2930 Toronto, ON M5V 3H1, Canada.
In our opinion, Bristol Water plc's financial statements (the "financial statements"):
The financial statements, included within the Annual Report, comprise:
Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross -referenced from the financial statements and are identified as audited.
The financial reporting framework that has been applied in the preparation of the financial statements is United Kingdom Accounting Standards, comprising FRS 101 "Reduced Disclosure Framework", and applicable law (United Kingdom Generally Accepted Accounting Practice).
There was no substantial change in the operation of the business during the year that would cause us to revisit the scope of the audit and therefore the scope of the audit remained consistent with the prior year with the exception of the work we performed on the company's adoption of FRS 101 "Reduced Disclosure Framework", which is noted as an area of focus below.
Overall materiality: £1,390,000 (2015: £1,070,000) which represents 5% of profit before tax.
The company is structured as a single reporting unit and the audit was carried out by a single audit team.
Provision for impairment of domestic trade debtors. Classification of expenditure on infrastructure assets. Valuation of the pension scheme. Adoption of FRS 101.
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) ("ISAs (UK & Ireland)").
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as "areas of focus" in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
| Area of focus | How our audit addressed the area of focus |
|---|---|
| Provision for impairment of domestic trade debtors Refer to page 58 of the Corporate Governance Report and note 15 of the financial statements The recoverability of customer debts is always a key issue for water companies. Even though the cash collection rates have shown clear indications of improvement in recent years, the recoverability is very sensitive to changes in economic circumstances. |
We evaluated the model used to calculate the provision and confirmed its consistency with prior years. We also tested the underlying data upon which the calculations were based and assessed the appropriateness of the judgements applied in calculating the provision, using historical cash collection trends from prior years and the latest available cash collection data for the current year. We also performed sensitivity analysis on the future cash collection rates by major customer category in order to identify the significance of the collection rates used on the overall value of the provision. We found that, consistent with prior years, the level of provision was within our expected range. |
| Classification of expenditure on infrastructure assets Refer to page 58 of the Corporate Governance Report and note 11 of the financial statements Expenditure on infrastructure assets is either capitalised as an addition to tangible assets or written off to the income statement, depending on the nature of the work done. Given the size and complexity of the capital programme and how it relates to the company's assessed performance for regulatory purposes, the classification of expenditure requires very significant management judgement. |
We tested a sample of expenditure on infrastructure items in the year to supporting documentation, such as contract certificates and invoices, and were satisfied that they had been classified in accordance with the company's accounting policies. |
| Valuation of the pension scheme Refer to page 57 of the Corporate Governance Report and note 24 of the financial statements We focused on this area because the defined benefit pension scheme surplus is material to the financial statements and is sensitive to a number of subjective assumptions such as discount rates, inflation and life expectancy. Also, the company closed the scheme for future accruals during the year, leading to a curtailment gain in the current financial year. |
We formed an independent expectation of the key pension valuation assumptions, including the discount rate, inflation rate and life expectancy, compared them with those adopted by the company and found them to be in line with our expectations. We formed an independent expectation of the curtailment gain in the year and found the amount to be in line with our expectation. We checked the accuracy of the data provided to the actuary by the company and used in their valuation, in particular the contributions paid by the company. We obtained third party confirmations of the valuation of the pension assets. We also obtained appropriate evidence for the competency and qualifications of the actuary who |
performed the valuation, and checked the information provided by the actuary to the financial statements.
Refer to note 5 of the financial statements
The Company has adopted FRS 101 "Reduced Disclosure Framework" ("FRS 101"). This resulted in transition adjustments being required for the implementation of the framework in the current year and in comparative periods.
We assessed the appropriateness of the transition adjustments made which included using the impact assessment performed in the previous year to check the completeness of the adjustments and disclosures required under FRS 101.
We performed substantive testing over the transition adjustments from existing UK GAAP to FRS 101 which included agreeing to supporting documentation and checking that they were in compliance with FRS 101.
The companyis structured as a single reporting unit and the audit was carried out by a single audit team.
In establishing the overall approach to our audit, we assessed the risk of material misstatement, taking into account the nature, likelihood and potential magnitude of any misstatement. Following this assessment, we applied professional judgement to determine the extent of testing required over each balance in the financial statements.
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement li ne items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall materiality | £1,390,000 (2015: £1,070,000). |
|---|---|
| How we determined it | 5% of profit before tax. |
| Rationale for benchmark applied |
We have applied this benchmark, a generally accepted auditing practice, in the absence of indicators that an alternative benchmark would be appropriate. |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £122,000 (2015: £54,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
The directors have voluntarily complied with Listing Rule 9.8.6(R)(3)(a) of the Financial Conduct Authority and provided a statement in relation to going concern, set out on page 68, required for companies with a premium listing on the London Stock Exchange.
The directors have requested that we review the statement on going concern as if the company were a premium listed company. We have nothing to report having performed our review.
The directors have chosen to voluntarily report how they have applied the UK Corporate Governance Code (the "Code") as if the company were a premium listed company. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the directors' statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to.
As noted in the directors' statement, the directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the company has adequate resources to remain in operation, and that the directors intend it to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the directors' use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these sta tements are not a guarantee as to the company's ability to continue as a going concern.
In our opinion, the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
| As a result of the directors' voluntary reporting on how they have applied the Code, under ISAs (UK & Ireland) we are required to report to you if, in our opinion: |
||
|---|---|---|
| information in the Annual Report is: materially inconsistent with the information in the audited financial statements; or apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of performing our audit; or otherwise misleading. |
We have no exceptions to report. |
|
| the statement given by the directors on page 51, in accordance with provision C.1.1 of the Code, that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the company's position and performance, business model and strategy is materially inconsistent with our knowledge of the company acquired in the course of performing our audit. |
We have no exceptions to report. |
|
| the section of the Annual Report on page 69, as required by provision C.3.8 of the Code, describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. |
We have no exceptions to report. |
| As a result of the directors' voluntary reporting on how they have applied the Code, under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: |
||
|---|---|---|
| the directors' confirmation on page 51 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten its business model, future performance, solvency or liquidity. |
We have nothing material to add or to draw attention to. |
|
| the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. |
We have nothing material to add or to draw attention to. |
|
| the directors' explanation on page 57 to 59 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. |
We have nothing material to add or to draw attention to. |
|
| The directors have voluntarily complied with Listing Rule 9.8.6(R)(3)(b) of the Financial Conduct Authority and provided a statement in relation to longer-term viability, set out on pages 37 to 39 , required for companies with a premium listing on the London Stock Exchange. The directors have requested that we review the statement on longer-term viability and also the directors' statement that they have carried out a robust assessment of the principal risks facing the company as if it were a premium listed company. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the |
checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not received all the information and explanations we require for our audit; or
adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors' remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.
The company voluntarily prepares a Directors' Remuneration Report in accordance with the provisions of the Companies Act 2006. The directors have requested that we audit the part of the Directors' Remuneration Report specified by the Companies Act 2006 to be audited as if the company were a quoted company.
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
The company's voluntary Corporate Governance Statement includes details of the company's compliance with the UK Corporate Governance Code. The directors have requested that we review the parts of the Corporate Governance Statement relating to ten further provisions of the UK Corporate Governance Code specified for auditor review by the Listing Rules of the Financial Conduct Authority as if the company were a premium listed company. We have nothing to report having performed our review.
As explained more fully in the Statement Of Directors Responsibilities set out on page 52, 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 ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or intowhose hands it may come save where expressly agreed by our prior consent in writing.
An 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. Thisincludes an assessment of:
theoverall presentation of the financial statements.
We primarily focus our work in these areas by assessing the directors' judgements against available evidence, forming our ownjudgements, and evaluating the disclosures in the financial statements.
We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw condusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.
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 audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Katharine Finn (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Bristol14July 2016
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