Annual Report • Mar 31, 2018
Annual Report
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Company number: 02914860
| Company information | |
|---|---|
| Strategic report | |
| Directors' report | |
| Independent auditor's report | |
| Income statement | |
| Balance sheet | |
| Statement of changes in equity | |
| Notes to the financial statements |
| Company number | 02914860 |
|---|---|
| Directors | M J Dovey (resigned 14 December 2017) J A Jackson B Kennedy R C McPheely |
| Secretary | A A Campbell |
| Registered office | Severn Trent Centre 2 St John's Street Coventry CV1 2LZ |
| Bankers | Barclays Bank PLC 1 Churchill Place London E145HP |
| Solicitors | Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG |
| Auditor | Deloitte LLP Statutory Auditor 2 New Street Square London EC4A 3BZ |
$\mathbf{1}$
The company is a wholly owned subsidiary of Severn Trent Plc and operates as part of the Severn Trent group's Regulated Water and Waste Water business.
The principal activity of the company is the provision of long term finance for its immediate parent, Severn Trent Water Limited. There have not been any significant changes in the company's principal activities in the current year. The directors are not aware, at the date of this report, of any likely major changes in the company's activities or prospects in the next year.
Severn Trent Plc manages its operations on a divisional basis and the company's directors do not believe that further key performance indicators for the company are necessary to enhance the understanding of the development, performance or position of the business. The performance of the Requlated Water and Waste Water business, which includes this company, is discussed in Severn Trent Plc's Annual Report and Accounts (which does not form part of this report).
The company's result for the financial year after taxation was £nil (2017: loss of £0.3 million). The directors do not recommend the payment of a dividend (2017: £nil).
As at 31 March 2018, the company has a net assets position of £0.1 million (2017; £0.1 million). The financial position of the company at the year end was satisfactory.
Financial risks are managed by a central treasury department ('Group Treasury') under policies approved by the board of directors of Severn Trent Plc. The board has delegated authority to the Severn Trent Plc Treasury Committee to monitor treasury activities. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the group's operating units. The board defines written principles for overall risk management. as well as written policies covering specific areas such as exchange rate risk, interest rate risk, credit risk and the use of derivative and non-derivative financial instruments. The group's treasury management policies and operations are discussed in Severn Trent Plc's Annual Report and Financial Statements (which does not form part of this report).
The company raises debt finance for its immediate parent company, Severn Trent Water Limited. Amounts raised are usually passed on to Severn Trent Water Limited on identical terms. Severn Trent Water Limited provides quarantees for the company's obligations under these arrangements. The principal risk of these arrangements is that Severn Trent Water Limited is unable to meet its obligations to the company.
During the year, the company has successfully issued two new debt instruments; two £250 million fixed sterling bonds repayable in September 2021 and December 2022. In January 2018, the company repaid a £400 million hond
Severn Trent is less affected than other companies from the decision to leave the European Union - we operate principally in the UK and our supplier base and customers are predominantly domestic. We are, however, subject to some of the broader developments that flow from the decision, such as:
The directors have considered the financial position and future prospects of the company. The directors believe that the company has access to sufficient resources to manage its business risks successfully despite the current uncertain economic outlook. In particular Severn Trent Water Limited acts as a guarantor in relation to the company's borrowings which are long term in nature (see note 9). After making enquiries, the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the report and annual financial statements.
By order of the board
R C McPheely Director 15 June 2018
The directors present their annual report and the audited financial statements of the company for the year ended 31 March 2018
The following matters are included in the company's Strategic report on pages 2 and 3:
There are no post balance sheet events.
The directors who served during the year are shown on page 1. M J Dovey resigned as director on 14 December 2017.
No emoluments were paid by the company in respect of the services of the directors to the company. Their emoluments are paid by other companies within the Severn Trent group.
The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (FRS 101). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safequarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the United kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The company's Articles of Association provide that directors of the company shall be indemnified by the company against any costs incurred by them in carrying out their duties including defending any proceedings arising out of their positions as directors in which they are acquitted or judgement is given in their favour or relief from any liability is granted to them by the court. This indemnification has been in force throughout the year and up to the date of signing the financial statements.
In the case of each of the persons who are directors of the company at the date when this report is approved:
Relevant audit information means information needed by the company's auditor in connection with preparing its report. This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Deloitte LLP has indicated its willingness to continue as auditor.
By order of the board
1 Phil
R C McPheely Director 15 June 2018
Report on the audit of the financial statements
In our opinion the financial statements:
We have audited the financial statements of Severn Trent Utilities Finance plc (the 'company') which comprise:
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 "Reduced Disclosure Framework" (United Kingdom Generally Accepted Accounting Practice).
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the financial statements section of our report.
We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC's Ethical Standard were not provided to the company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
| Key audit matters | The key audit matters that we identified in the current year were: valuation and completeness of borrowings; and management override of controls. |
|---|---|
| Materiality | The materiality that we used in the current year was £9 million which was determined on the basis of 0.25% of borrowings. |
| Scoping | Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team. |
We are required by ISAs (UK) to report in respect of the following matters where:
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| Valuation and completeness of borrowings | |||
|---|---|---|---|
| Key audit matter description |
The principal activity of the company is the provision of long term finance for its immediate parent company, Severn Trent Water Limited. The company has borrowings which it subsequently lends to Severn Trent Water Limited on the same terms. Borrowings payable as at 31 March 2018 were £3,547 million and are highly material to the company. As further disclosed in note 1(e) and note 9 to the financial statements, these borrowings are measured at amortised cost using the effective interest rate method whereby interest and issue costs are charged to the income statement and added to the carrying value of borrowings at a constant rate in proportion to the capital amount outstanding. A key audit matter has been identified around the valuation and completeness of the company's borrowings with new borrowings being issued within the year as well as some existing borrowings maturing. |
||
| How the scope of our audit responded to the key audit matter |
Procedures performed to respond to the key audit matter included the following: for all borrowings, agreed the original principal and loan terms to the original loan $\bullet$ agreement; for new borrowings in the year, agreed receipt of the borrowings to bank statement; $\bullet$ for borrowings which matured in the year, agreed repayment to bank statement; $\bullet$ recalculated the foreign exchange adjustment on foreign currency debt; $\bullet$ recalculated the amortised cost of the borrowings including the adjustment for $\bullet$ deferred origination fees and for RPI index linked loans; and reviewed Board minutes for evidence of approval of any new borrowings in the year to $\bullet$ assess completeness. |
||
| Key observations | No misstatements or matters requiring communication to those charged with governance have been identified during the testing of this key audit matter. |
||
| Management override of control | |||
| Key audit matter description |
We are required under ISA 240 (UK) to identify management override of controls as a fraud risk and have identified this to be a key audit matter for the company. This key audit matter specifically relates to the potential for journals to be inappropriately posted and the accounting for transactions outside of the ordinary course of business. |
||
| How the scope of our audit responded to the key audit matter |
We performed the following procedures to identify where there were any instances of management override of controls: inquired of management to identify transactions that appeared to be outside of the $\bullet$ normal course of business to understand their commercial rationale; reviewed board and executive committee meeting minutes; $\bullet$ assessed the design and implementation of controls over journal entry recording; and $\bullet$ used our analytics tool to identify journal entries throughout the year which indicate $\bullet$ potential characteristics of fraud. |
||
| Key observations | We have not identified any indicators of inappropriate management override of controls. |
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Materiality | £9 million |
|---|---|
| Basis for determining materiality |
Materiality has been based on 0.25% of the company's borrowings. This reflects that materiality is required to be less than that of the parent company, Severn Trent Water Limited. |
| Rationale for the benchmark applied |
The above benchmark was applied because the principal activity of the company is the provision of long term finance for its immediate parent, Severn Trent Water Limited. |
We agreed with the directors that we would report to them all audit differences in excess of £450,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the directors on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Our audit was scoped by obtaining an understanding of the entity and its environment, including internal control, and assessing the risks of material misstatement. Audit work to respond to the risks of material misstatement was performed directly by the audit engagement team.
The directors are responsible for the other information. The other information comprises the information included in the annual report including the Strategic Report and Directors' Report, other than the financial statements and our auditor's report thereon.
Our opinion on the financial statements does not cover the other information and. except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
We have nothing to report in respect of these matters.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report.
Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion:
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors' remuneration have not been made.
We have nothing to report in respect of these matters.
We have nothing to report in respect of this matter.
Other matters
Following the recommendation of the audit committee of the company's ultimate parent, we were appointed by Severn Trent Plc on 15 July 2015 to audit the financial statements for the year ending 31 March 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 13 years, covering the years ending 31 March 2006 to 31 March 2018.
Consistency of the audit report with the additional report to the audit committee Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
lab.
Kari Hale, ACA (Senior statutory auditor) For and on behalf of Deloitte LLP Statutory Auditor London, United Kingdom
15 June 2018
| 2018 | 2017 | ||
|---|---|---|---|
| Notes | £m | £m | |
| Interest income | 179.8 | 152.3 | |
| Interest expense | 6 | (179.8) | (152.7) |
| Loss on ordinary activities before taxation | (0.4) | ||
| Current tax | 0.1 | ||
| Taxation on loss on ordinary activities | 0.1 | ||
| Loss for the year | $\sim$ | (0.3) |
All results are from continuing operations in both the current and preceding year.
The company has no comprehensive income other than the results above and therefore no separate statement of comprehensive income has been presented.
| Notes | 2018 £m |
2017 | |
|---|---|---|---|
| £m | |||
| Non-current assets | 8 | ||
| Trade and other receivables | 3,547.5 | 3,002.6 | |
| Current assets | |||
| Trade and other receivables | 8 | 42.0 | 442.6 |
| Cash at bank | 0.2 | 0.1 | |
| 42.2 | 442.7 | ||
| Current liabilities | |||
| Trade and other payables | 9 | (42.1) | (442.6) |
| Net current assets | 0.1 | 0.1 | |
| Non-current liabilities | |||
| Trade and other payables | 9 | (3, 547.5) | (3,002.6) |
| Net assets | 0.1 | 0.1 | |
| Equity | |||
| Called up share capital | 10 | ||
| Retained earnings | 0.1 | 0.1 | |
| Total shareholder's funds | 0.1 | 0.1 |
The financial statements were approved by the board of directors on 15 June 2018. They were signed on its behalf by:
R C McPheely
Director 15 June 2018
Company Number: 02914860
| Share capital |
Retained earnings |
Total | |
|---|---|---|---|
| £m | £m | £m | |
| At 1 April 2016 | - | 0.4 | 0.4 |
| Total comprehensive loss for the year | $\overline{\phantom{m}}$ | (0.3) | (0.3) |
| At 1 April 2017 | 0.1 | 0.1 | |
| Total comprehensive result for the year | |||
| At 31 March 2018 | 0.1 | 0.1 | |
The financial statements have been prepared on the going concern basis (see Strategic report) under the historical cost convention as modified by the revaluation of certain financial assets and liabilities at fair value, and in accordance with applicable United Kingdom Accounting Standards and comply with the requirements of the United Kingdom Companies Act 2006 ('the Act'). The principal accounting policies, which have been applied consistently in the current and preceding year are set out below.
The company is a wholly owned subsidiary of Severn Trent Plc and is included in the consolidated financial statements of Severn Trent Plc.
The company meets the definition of a qualifying entity under FRS 100 Application of Financial Reporting Requirements. Accordingly, the company has elected to apply FRS 101 Reduced Disclosure Framework.
Therefore the recognition and measurement requirements of EU-adopted IFRS have been applied, with amendments where necessary in order to comply with the Companies Act 2006 and The Large and Mediumsized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) as these are Companies Act 2006 accounts.
As permitted by FRS 101, the company has taken advantage of the disclosure exemptions available under that standard in relation to share based payment, capital management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement, standards not yet effective, impairment of assets and related party transactions.
Where required, equivalent disclosures are given in the group financial statements of Severn Trent Plc. The group financial statements of Severn Trent Plc are available to the public and can be obtained as set out in note $121$
Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable.
Current tax payable is based on taxable profit for the year and is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible.
Deferred taxation is provided in full on taxable temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred taxation is measured on a nondiscounted basis using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis.
All borrowings are initially recognised at fair value less issue costs. After initial recognition, borrowings are subsequently measured at amortised cost using the effective interest rate method whereby interest and issue costs are charged to the income statement and added to the carrying value of borrowings at a constant rate in proportion to the capital amount outstanding.
Index-linked debt is adjusted for changes in the relevant inflation index and changes in value are charged to finance costs.
Foreign currency transactions arising during the year are translated into sterling at the rate of exchange ruling on the date of the transaction. All profits and losses on exchange arising during the year are dealt with through the income statement.
Loans receivable are measured at fair value on initial recognition, less issue fee income received. After initial recognition, loans receivable are subsequently measured at amortised cost using the effective interest rate method whereby interest and issue fee income are credited to the income statement and added to the carrying value of loans receivable at a constant rate in proportion to the loan amount outstanding.
No significant accounting judgements or key sources of estimation uncertainty have been identified.
Fees payable to the company's auditors for the audit of the company's annual accounts of £8,000 (2017: £8,000) have been paid by the parent undertaking on behalf of the company. No other fees were payable to the auditor (2017: nil).
The average number of employees during the year (including executive directors) was nil (2017: nil).
The emoluments of the directors are paid by other companies within the Severn Trent group.
| 2018 | 2017 | |
|---|---|---|
| £m | £m | |
| Interest income earned on: | ||
| Amounts due from group undertakings | 179.8 | 152.3 |
| Total interest income | 179.8 | 152.3 |
| 2018 | 2017 | |
|---|---|---|
| £m | £m | |
| Interest charged on: | ||
| Bank and other loans | (179.8) | (152.7) |
| Total interest expense | (179.8) | (152.7) |
| 2018 | 2017 | |
|---|---|---|
| £m | £m | |
| Current tax at 19% (2017: 20%) | ||
| Current year | (0.1) | |
| Total current tax | $\overline{\phantom{000000000000000000000000000000000000$ | (0.1) |
The company earns profits primarily in the UK. Therefore, the tax on profit on ordinary activities is the standard rate for UK corporation tax.
The tax assessed for the current year is equal (2017: equal) to the standard rate of corporation tax in the UK of 19% (2017: 20%).
| 2018 | 2017 | |
|---|---|---|
| £m | £m | |
| (Loss)/profit on ordinary activities before tax | - | (0.4) |
| Tax at the standard rate of corporation tax in the UK 19% (2017: 20%) | (0.1) | |
| Total tax (credit)/charge | $\overline{\phantom{0}}$ | (0.1) |
| 2018 £m |
2017 £m |
|
|---|---|---|
| Current assets | ||
| Amounts owed by parent company | 41.9 | 442.5 |
| Current tax receivable | 0.1 | 0.1 |
| 42.0 | 442.6 | |
| Non-current assets | ||
| Amounts owed by parent company | 3,547.5 | 3,002.6 |
| 3,589.5 | 3.445.2 |
| 2018 | 2017 | |
|---|---|---|
| £m | £m | |
| Current liabilities | ||
| Borrowings due within one year | $\overline{\phantom{a}}$ | 399.6 |
| Interest payable | 42.1 | 43.0 |
| 42.1 | 442.6 | |
| Non-current liabilities | ||
| Borrowings | 3,547.5 | 3,002.6 |
| 3,589.6 | 3,445.2 | |
The company operates back to back lending arrangements with its parent company, Severn Trent Water Limited. Therefore the loans repayable partly or wholly after more than one year are repayable to the company under the same terms that it repays them externally. The loans comprise:
| 2018 | 1-5 years | 5-10 years | $10-15$ years | 15-20 years | More than 20 years |
Total |
|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | |
| Fixed rate | 498.8 | 793.8 | 818.2 | $\overline{\phantom{000000000000000000000000000000000000$ | 247.3 | 2,358.1 |
| Floating rate | $\overline{\phantom{a}}$ | 17.5 | 13.4 | $\qquad \qquad$ | 30.9 | |
| RPI linked | $\overline{\phantom{0}}$ | 39.6 | 159.4 | - | 959.5 | 1,158.5 |
| 498.8 | 850.9 | 991.0 | - | 1.206.8 | 3,547.5 |
| 2017 | 5-10 years | $10-15$ years | $15-20$ years | More than 20 years |
Total |
|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | |
| Fixed rate | 792.9 | 817.6 | - | 247.1 | 1,857.6 |
| Floating rate | 16.9 | 14.3 | $\overline{\phantom{000000000000000000000000000000000000$ | 31.2 | |
| RPI linked | 38.3 | 153.9 | - | 921.6 | 1.113.8 |
| 848.1 | 985.8 | $\overline{\phantom{000000000000000000000000000000000000$ | ,168.7 | 3,002.6 |
The weighted average interest rate of borrowings due after more than five years is 3.56% (2017: 3.42%).
| 2018 | 2017 | |
|---|---|---|
| £m | £m | |
| Authorised share capital | ||
| 50,000 ordinary shares of £1 each | - | $\overline{\phantom{0}}$ |
There have been no transactions with the directors of the company during the last financial year.
In accordance with the exemption allowed by FRS 101, no disclosure is made of transactions with other wholly owned member companies which are consolidated into the Severn Trent Plc group.
The immediate parent undertaking is Severn Trent Water Limited.
The ultimate parent undertaking and controlling party is Severn Trent Plc, which is the parent undertaking and controlling party of the smallest and largest group to consolidate these financial statements. Copies of the Severn Trent Plc consolidated financial statements can be obtained from Severn Trent Plc's registrars at Equiniti, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA.
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