Annual Report and Accounts 2011/2012 Imraa as Coontaghyn Bleeaney 2011/2012 Members of the Board

Back row, left to right: Ms E Wisemark (Board Member), F Newton (Board Member), M R Coleman (Board Member) Front row, left to right: M Dewhurst (Director of Operations), W R Henderson MHK (Vice Chairman), G D Cregeen MHK (Chairman), P Winstanley (Chief Executive)

Graham Cregeen MHK Elected to the for at the 2006 General Election, Graham Cregeen was appointed Chairman of the Water & Sewerage Authority in 2011, before taking up the post of Minister for Community, Culture and Leisure in July 2012. He also served as Chairman of the Public Accounts Committee until appointed Minister for Community, Culture and Leisure and is a Member of the Select Committee on Local Authorities: Members’ Interests, the Police Advisory Group and is Representative at the Court of the University of Liverpool. His previous Government posts have seen him serve as a Member for Agriculture, Fisheries and Forestry (2006-08), Education (2008-10), Tourism and Leisure (2008-09), and Infrastructure (2010-12). Graham has also sat on the Select Committee on the Workshop for the Disabled (2007), Select Committee on the Steam Packet Company (2007-08), Langness Delegation (2008), Select Committee on the Steam Packet Company (2009), Select Committee on Crossag Farm (2008-10), Economic Initiatives (2007-11), Public Accounts (2007-11), Standing Orders (2007-11), and was Chairman of the Select Committee on the Television Licence Fee (2009-11).

2 Bill Henderson DipMgt, MCMI, MIHSM, RMN, MHK Educated at Ballakermeen and St Ninian’s High Schools, Bill trained as a psychiatric nurse before gaining post-graduate qualifications in clinical teaching and stress management. His management qualifications include a Professional Diploma in Management from the Open University and he is a member of the Chartered Management Institute. He started his nursing career in 1981 and was hospital night manager at Ballamona Psychiatric Hospital (1992-98). Bill was elected to the House of Keys at a by-election in 1998, winning re-election in 2001, 2006 and 2011. He served as Minister for Agriculture, Fisheries and Forestry (2004-05), and has been a Member of several Government Departments, including Education (1999-2001), Local Government and the Environment (2001-04 and 2005-06), Education (2006-09), Health and Social Security (2009-10), and Social Care (2010-11). Bill has also served as Chairman of the Planning Committee (2001-04) and Chairman of the Office of Fair Trading (2008-11). He was appointed Vice-Chairman of the Isle of Man Water & Sewerage Authority in 2011. Bill has served on several Tynwald Committees, most recently the Public Accounts Committee from 2007-11, and is involved with many organisations, including the Transport and General Workers Union, Royal British Legion, Friends of the Burma Star Association, Manx Rivers Improvement Association, Manx Ecological Concern, Celtic League, Manx Foundation for the Physically Disabled; he’s also a former member of the Institute of Health Services Management, Manx Antiquarian and National History Society, Manx Wildlife Trust, Royal Society for the Protection of Birds, and New York Conservation Society.

Michael R. Coleman LLB(Hons)(Open), CEng, FBCS, CITP, FIMIS Michael Coleman has been resident on the Isle of Man since August 1988 when he transferred from the Bahamas for what is now Coutts & Co. He is a Chartered Engineer, Chartered Fellow of the British Computer Society (‘BCS’) and is a former Chairman of the Isle of Man International Section. Michael has considerable executive management experience having held numerous Directorships within Coutts & Co and other organisations. He also served as Joint Deputy Chairman of Coutts Bahamas and Coutts Cayman. He has had considerable experience of the water industry having been responsible for information technology for a company specialising in the design and construction of water infrastructure based around major desalination plants located in the East. This role also included responsibility for the process control systems that controlled the water production facilities. Michael has been a Member of the Board of the Water Authority since January 2002, being reappointed to the Board in February 2007 & February 2012. He is Chairman of the Investment Committee and serves as Vice-Chairman of the Audit Committee. Michael has served in both of these roles since the inception of the Committees. In February 2012 Michael was appointed to the Board of the Manx Electricity Authority where he serves as Chairman of the Audit Committee. He also serves as Chairman of the Isle of Man NHS Independent Review Body where he has been involved since its creation in 2000.

3 Eva M Wisemark BEng, MBA, Dip IoD, FRSA For the past 16 years Eva Wisemark has run her own business offering strategic and restructuring advice to small and medium sized businesses. Prior to that she held a broad range of management positions in Europe and the US in the power and water utility, chemical and engineered products industries. She has also held a number of non-executive directorships in both the private and public sectors. Eva held a senior executive role in the water utility industry as an executive director of North West Water plc (subsequently United Utilities) with responsibility for the growth and expansion of its non-regulated international businesses. Prior to that she held various senior strategic development roles within the $4 billion Performance Materials Sector of Allied Signal (now Honeywell Inc.) reaching the level of Business Development Director. These roles included worldwide responsibility for strategy and development of a large number of chemical and engineered product businesses including water treatment chemicals. She also had the overall responsibility for mergers & acquisitions, divestitures and joint ventures. In her early career she worked as a turbine sales engineer, cost engineer and procurement manager with several multinational companies. She has held UK Government appointments as a member of the North West Industrial Development Board, a Trustee of National Museums Liverpool, and a Commissioner of the US-UK Fulbright Commission of which she is now a Patron. She has also been chairman of Institute of Directors North West and Business in the Arts: North West. Eva is a qualified engineer and holds a mechanical engineering degree from her native Sweden and an MBA (Finance major) from Rutgers University, USA. She holds a Diploma in Company Direction from the IoD and is a Fellow of the Royal Society of Arts. Eva was appointed to the Board of the Water and Sewerage Authority in February 2012. She is Chairman of the Capital Projects Steering Group, Chairman of the Health & Safety Council and Vice Chairman of the Investment Committee. In May 2012 she was appointed as a Trustee of Manx National Heritage.

Frank Newton FCMI MCIPD MREC Frank Newton is a Manx born and educated businessman possessing considerable operational management experience. Since starting up his first company in Douglas at the age of 25, Frank has been a well known figure in the Island’s business community for over forty years. Frank was the Founder and Chairman of the Hamblin Employment Group in Douglas which he established in 1987 and operated for twenty four years as the Island’s largest recruitment and employment business before selling the concern and retiring in 2011. Prior to setting up Hamblin Frank had a successful and distinguished business career in operational management, mainly within the electrical industry that included some fifteen years running subsidiary companies and projects for the N.G. Bailey Organisation in the Isle of Man, UK and the Middle East. Frank is a past Chairman of the Isle of Man Chamber of Commerce’s Employment and Training Committee as well as being a Chamber Council Member for ten years. He was Founder Chairman of the Isle of Man Recruitment and Employment Services Federation, Chamber Representative on the Isle of Man College Business Studies Advisory Committee, a member of the Executive Council of the Isle of Man Employers Federation and a member of the Isle of Man Building Trades Council. Frank was also a member of the Social Security Appeals Tribunal (Employer Representative) as well as being a Chamber Representative at MNEDC meetings. He has sat on various Government Working Parties over the years and contributed to subsequent reports to the Council of Ministers. Frank was appointed to the Board of the Isle of Man Water and Sewerage Authority in January 2012 where he serves as Chairman of the Audit Committee and Vice Chairman of the Capital Projects Steering Group.

4 Contents

Foreword 6 - 7

Chairman’s Statement 8

Statement of Internal Control 9 - 11

Chief Executive’s Report 12 - 17

Statement of the Board 18

Officers and Professional Advisors 18

Report of the Independent Auditors 19

Income and Expenditure Account 20

Balance Sheet 21

Cash Flow Statement 22

Notes to the Accounts 23 - 30

Meetings and Sites/Works Visits 31

5 Foreword to the Annual Report and Accounts 2011/12

The purpose of this foreword is to offer an overview of the financial issues that the Board of the Isle of Man Water & Sewerage Authority (the Authority) consider to be the most significant and as such are reported within the 2011/12 accounts. This foreword also confirms the overall sustainability of the Authority and thereby gives comfort to customers that the quality of water supplied and the future availability of water resources will be maintained and monitored to industry standards and that the sewage treatment and sewerage systems will be adequately maintained and improved across all areas of the Island and that the Authority will have an overview on all flood risk matters on the Island. The Authority will continue to operate prudent and regularly reviewed financial controls that will ensure value for money. 1. The Authority is wholly owned by the . 2. The Authority is funded through two distinct revenue streams. Income from water rates funds the potable water function including a 20-year capital expenditure programme of £108 million (M) which is supported by a Treasury Bond (“Bond”), with a value of £75M, taken out by Government in 2000. This Bond is repayable in full in March 2030 and the Authority has a Sinking Fund (“Sinking Fund”) in place, which is funded wholly from Authority raised water income, to meet this obligation. The annual interest charge liability on this Bond (£4.2M) is also met from water rate receipts from customers. The Sewerage Function is funded by Central Government and this funding covers both revenue and capital commitments and is reviewed annually through the Government’s budget process. 3. The current financial position, shown within these Accounts, details that the Authority has net assets of £58.3M and a positive cash flow in 2011/12 from revenue activities of £4.7M. The Accounts for 2011/12 show a surplus of £5.5M, which is an essential part of both the financing of future capital schemes and building up suitable interim reserves to be able to repay in full the £75M Treasury Bond in 2030. 4. The Water Asset Management Plan (AMP) expenditure to March 2012 totals almost £82M, including £40M for the two new Water Treatment Works at Sulby (opened November 2005) and Douglas (opened May 2008). A further £26M, at 2012 prices, is scheduled to be spent between April 2012 and March 2021. This will then conclude the 20-year Water AMP programme, originally set out and approved in 1999 and revised in 2002. The capital expenditure within the year on sewerage infrastructure, funded by Treasury, was £3.2M, mainly on refurbishing existing assets and the first phase of the Regional Sewage Treatment Strategy (RSTS) for the North, East and West of the Island which received Tynwald Approval in April 2011 with a value of £40.0M. Detailed design and construction work on these schemes commenced in 2011/12 for a target completion of this first phase by 2016. 5. The Authority runs a detailed financial model each year to continually review the long-term sustainability of the Authority and to confirm its ability to meet the commitments made to Tynwald in 1999 in respect of the £75M Bond and to ensure suitable funds are available for the required revenue and capital expenditure on an annual and long term basis. 6. The Authority continues to manage its Sinking Fund prudently with bias towards highly rated Bonds with minimal exposure to any non-secure investments. As evidence to this prudent approach, despite exceptionally difficult global investment market conditions, investment income in the year to March 2012 still contributed almost £0.8M to the overall annual surplus. The original fund, used to fund the early years of the AMP capital programme, was closed in 2011 and the Sinking Fund now stands at just under £25M.

6 4 7. The Authority completes a Statement on Internal Control which is approved annually by the Board and issued to Treasury. A full annual Statement on Internal Control, dated March 2012, is included in this year’s Report and Accounts. 8. It is worth noting in the current economic climate that the Authority has no direct pensions liabilities but does pay, in full, all annual Treasury demands for Employers’ superannuation contributions. 9. The Authority has a policy of reporting all exceptional items which have a financial impact to the Board, Treasury and within the body of the Report and Accounts when they are of material importance. Asset re-valuation issues appertaining to 2011/12 are discussed in item 12 of this foreword. 10. The Authority is obliged to comply with all changes to regulations and standards as set by industry or regulatory bodies. Any material changes within the year are disclosed within the Report and Accounts. 11. As of 1st April 2010, the Isle of Man Water Authority was merged with the Drainage Division of the Department of Infrastructure to form the Isle of Man Water and Sewerage Authority, a wholly-owned Statutory Board of the Isle of Man Government. This Report and Accounts shows both individual and combined accounts for the Water and Sewerage Functions for 2011/12 and their corresponding comparatives for 2010/11. 12. Valuations of the sewerage assets acquired by the Authority under the Transfer of Functions Order were made at market value as at 1st April 2010. Depreciation schedules have been reviewed against all the original projections at takeover and corrections to life expectancy made where appropriate. Further analysis and external opinion relating to certain non-operational properties have been deemed to have minimal re-sale value and these have been written down accordingly.

7 Chairman’s Statement

This is the second Annual Report and Accounts for the Isle of Man Water and Sewerage Authority. The Authority was formed in April 2010, under the Transfer of Functions Order, by the amalgamation of the Drainage Division of the Department of Transport with the Isle of Man Water Authority. I am very pleased to have been appointed Chairman of the Authority in November 2010 and would like to place on record the Authority’s thanks to the previous Chairman, Hon MHK and the Vice Chairman Mrs Clare Christian MLC, now President of Tynwald, who oversaw the formation of the new Authority. The Authority has a dedicated and diverse workforce, spread right across the Island, providing the essential services of water treatment and distribution, sewerage and sewage treatment and management of the Island’s Main River systems. The teams are on-call 24 hours a day, 365 days a year to ensure that good quality wholesome drinking water is provided to every household, that sewage is collected and treated and that the risk of flooding is managed appropriately. I am pleased to report that, as a result of the dedication and expertise of the Authority’s staff in managing the various assets, there have been no major water supply interruptions during the year, sewage has been treated in compliance with the agreed standards and there have been no major flooding incidents. The Authority is funded by two income streams. The Water Function is funded by income derived from charges to its customers through water rates or metered water charges. The Sewerage and Flood Risk Management Functions are funded from general taxation, via a grant from Treasury. Keeping two separate sets of accounts is creating an unnecessary administrative burden for the Authority and, as a consequence, in the future the Authority’s Board and Treasury will be considering whether it will be possible to produce a consolidated set of accounts for the Authority. Looking at the year 2011/12, the water rates were increased by 4% during the year, which is 2% less than the figure previously approved by Tynwald. The grant from Treasury for the Sewerage and Flood Risk Management Functions was reduced by 5% from the 2010/11 figure, which has presented operational constraints on the business. Furthermore, the Authority’s operations have been further constrained by a requirement that salary costs and manpower levels must remain at 2010/11 levels. I am pleased to report that during the year, expenditure throughout the Authority has been contained within the agreed budgets. The Water Function has delivered all its capital schemes within budget and the Sinking Fund has been maintained at the desired level to ensure that the Treasury bond will be repaid when it falls due in 2030. The Sewerage Function has progressed with the various projects forming the Regional Sewage Treatment Strategy together with schemes to refurbish the sewerage assets. Looking to the future, it is likely that the grant from Treasury for the Sewerage and Flood Risk Management Functions will reduce year on year and, in order to ensure levels of service are not compromised, it will be necessary to consider alternative methods of funding these essential activities.

Hon Graham Cregeen MHK Chairman

8 6 Statement on Internal Control year ended 31 March 2012

The Isle of Man Water & Sewerage Authority (“the Authority”) is constituted as a Statutory Board of Tynwald. This report is made by the Authority’s Accounting Officer to the Chief Financial Officer of the Treasury in accordance with the requirements of the Isle of Man Government’s Corporate Governance Principles and Code of Conduct (“the Code”).

Responsibilities of the Board and the Accounting Officer The Board controls strategy, policy and key financial and operational matters within the Authority. In addition it is the Board’s responsibility to ensure that the work of the Accounting Officer, and other senior officers, supports the strategy and policies approved by the Board. As Accounting Officer, the Chief Executive of the Authority is responsible for implementing and maintaining systems of internal control and corporate governance which: • ensure compliance with legislation and other regulations; • safeguard public money, ensure that it is properly accounted for and that it is used economically, efficiently and effectively; and • support the achievement of the strategy, policies, aims and objectives approved by the Board. In discharging this responsibility, the Chief Executive works with senior officers to put in place arrangements for the governance of affairs of the Authority and the stewardship of resources in accordance with the Code.

Corporate Governance The two Functions of the Authority (Water and Sewerage) have independently developed strong corporate governance frameworks which document the performance in the key areas of community focus, performance management, structures and processes, standards of conduct and risk management. The review, which has been carried out by the Accounting Officer for the financial year, shows that the merged Authority has continued to follow policies and procedures that have resulted in the overall performance of the organisation improving in many areas. Integration between the two Functions of the new Authority has inevitably also highlighted the need for commonality and single systems in several key areas of its operation, not least in the monitoring of corporate governance. The Authority has identified where it anticipates those improvements can be achieved in the future and, allied to the continued development of its risk management programme across all areas, the merged Authority can look forward with confidence to developing an overall governance programme in 2012 which will enhance the production of its Statements on Internal Control in future years. The Authority will not only strive to improve the standards and performance of all areas of the business but also effectively monitor all areas of risk to ensure comprehensive programmes for risk mitigation are developed and reported against as an integral part of the overall governance process.

Risk Management The Authority has continued to develop its approach to managing the key risks that would prevent the organisation from achieving the aims and objectives defined in its Strategic Business Plan 2012-2013, from meeting its statutory obligations as defined by the relevant Water, Sewerage and Land Drainage Acts or from fulfilling the requirements of the Isle of Man Government’s Corporate Governance Principles and Code of Conduct. Attention is drawn to the fact that not all of the risks identified are within the Authority’s control. Key risks and control measures are set out below. The key risks have been categorised as: Community Risks, Financial and Economic Risks, and Operational Risks. Both the Water and Sewerage Functions maintain separate registers of Operational Risks, controls and mitigations. The two separate systems will be combined into a single system for the Authority in the coming year.

9 Statement on Internal Control year ended 31 March 2012 Continued...

The Authority’s core services benefit the public on the Island, directly or indirectly. The Community Risk register summarises the likelihood and impact of hazards which have the potential to significantly harm the Island’s community and describes the controls that are in place. This risk category assesses the impact of failure of critical assets, including: water treatment works and water supply infrastructure, impounding reservoir dams, sewerage and sewage treatment assets. The Authority has in place emergency response and business continuity plans that deal with failure of critical components, the prolonged loss of IT infrastructure, electricity supply outages and other events which could lead to a significant community impact. Flood maps have been developed to identify the areas within the Island’s coastal communities at risk of storm tide surge flooding, and which reduce the impact of flooding by informing emergency response plans. Operational Risks are those which would generally lead to a failure in the service delivered, for example due to the failure of a major asset. The Authority has sought to minimise this area of risk by introducing Quality Assurance procedures in key areas across the organisation. Water Safety Plans have been further developed which mitigate risks associated with the provision of service throughout its water production and supply function. These initiatives, and their consistent application throughout the year, are audited by both Internal and External Auditors. The Authority will continue with the development of Quality Assurance procedures until all key business areas of the merged Authority are covered. Both Functions have many years of experience in monitoring the performance of their assets and ensuring that maintenance is undertaken in a timely manner. The increasing complexity of the assets, and the systems which control and monitor those assets, provide benefits in terms of the quality of the service delivered but may result in significant disruptions to supply if those systems fail. The Authority is committed to increasing its stockholding of essential apparatus, and developing strong relationships with suppliers of key goods and services, in order to minimise the risk of prolonged failures. Many of the Authority’s systems include redundancy, dual, back-up or standby facilities that automatically engage in the event of failure, and regular monitoring of key systems and proactive maintenance of critical assets are undertaken to ensure that the Authority’s operating capability is maintained. The Authority recognises that the protection of the health and safety of employees, and others affected by its operations, is vitally important. The Authority has established a Health and Safety Management System, which ensures that health and safety policy, standards, inspections, procedures and guidance are formally established, and the Authority’s health and safety performance is monitored at Board level. The Authority’s performance, including its ability to mitigate those risks within its control, depends on the knowledge, skills and experience and capability of its employees. The Authority’s future success will depend largely on its ability to attract, retain, motivate and organise employees with the right capabilities and experience. Recruitment processes ensure suitably qualified and experienced applicants are selected which, coupled with appropriate remuneration and training and development opportunities, provide the Authority with staff possessing the required knowledge and abilities. These processes ensure that, where possible, adequate succession management is achieved. Financial and Economic Risks are those which have the potential to impact on the financial stability of the Authority. The Water Function is entirely self financing and receives its income directly from its customers through rates and charges. In order to deliver its substantial capital programme it has issued, through Treasury, a £75M Bond which must be repaid in 2030. The creation of a Sinking Fund in 2000 to ensure that sufficient funds are available to repay the Bond has resulted in the Authority having an investment portfolio which is affected by the changes in the wider economy. The Authority, through its Investment Committee, prudently manages its income and its investments to ensure that its commitments, with respect to capital expenditure, are affordable and that the repayment of the Bond in 2030 is assured. Operational and capital expenditure in the Sewerage Function of the Authority is funded by an allocation from Treasury on a year by year basis and therefore the underlying financial strength of that Function is dependent upon the overall funding available from Treasury. It has been an essential part of the merger of the two Functions that common systems are adopted for the management of both operating cost expenditure and capital expenditure which ensure that a consistent approach to the management of all financial matters is achieved. The Sewerage Function has transferred onto the Authority’s Navision financial system which allows consistent budgetary management and control of both Water and Sewerage Functions. In addition, accounts for each Function are being prepared using generally accepted accounting practices (GAAP) which will facilitate financial comparisons year on year.

10 Review of Internal Control and Corporate Governance Environment The Authority’s Water Function has developed systems of internal control, risk management and corporate governance over the past decade through an ongoing process designed to identify the principal risks, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically. Further evidence as to the effectiveness of internal controls and corporate governance arrangements is provided by reports issued during the year by the Treasury, Internal Audit, the External Auditors and other external reviewers. The Authority’s Audit Committee meetings are attended by the Chief Internal Auditor and Financial Controller of Treasury. The Sewerage and Drainage Functions of the Authority have similar controls and processes that were implemented when part of the Department of Transport and covered by more global departmental reviews and controls. The integration of both sides of the Authority under one common set of corporate controls will continue during 2012/13. The effectiveness of the Board’s internal control and corporate governance arrangements are continuously assessed by the work of management. To inform my review of effectiveness I have considered the views of the senior management, who have completed self-assessment questionnaires on internal control, risk management and corporate governance arrangements within the Authority. In providing their assurances, the Divisional Heads have given specific consideration to each of the following operating risks within their service areas:

• Business Continuity • Performance Management • Financial Management & Compliance • Procurement • Information Management • Value For Money • Human Resources • Change Management • Health & Safety • Environment • Corporate Governance

Report on Internal Control and Corporate Governance Environment Attention is drawn to the fact that systems of internal control and corporate governance are designed to manage, rather than eliminate, the risk of failure to achieve objectives. They can therefore only provide reasonable and not absolute assurance. Accordingly, reasonable assurance is given that the Authority’s internal control and corporate governance arrangements are adequate and operated effectively during the year ended 31st March 2012. The Authority is committed to a process of continuous development and improvement. It is recognised there is always room for improvements to be made in the areas of internal control and corporate governance. While a number of planned business improvements have been identified, there are no significant control weaknesses or issues to report in either Function of the organisation. The key challenge for 2012/13 will be to continue the amalgamation of the two sets of corporate governance controls into one cohesive format for future reporting.

Peter Winstanley Chief Executive

11 Chief Executive’s Report

This is the second year of operation of the Isle of Man Water and Sewerage Authority which has responsibility for providing wholesome drinking water to the population of the Island, treating the Island’s sewage to the standards defined by Tynwald and having a general overview on all flooding and land drainage matters on the Island. I am pleased to report that during the year the quality of the drinking water supplied to customers remains excellent, there were no major disruptions to water supply, no hosepipe restrictions, the sewage being pumped to the Meary Veg sewage treatment works was treated to the standards agreed by Tynwald and there were no major flooding incidents on the Island. A new Board was constituted during the year. In November 2011, Hon Graham Cregeen MHK was appointed as Chairman of the Authority and Bill Henderson MHK appointed Vice Chairman. Lay Board Member appointments were made in February 2012 with Mike Coleman continuing for a third term and was joined on the Board by Ms Eva Wisemark and Frank Newton. I would like to take this opportunity to express sincere thanks for all the hard work and dedicated service given by Charles Coole and Hugh McCallion, whose appointments came to an end in January and who between them served on the Board of the Authority for 18 years. The Board remains committed to developing a single organisation which provides some of the most important services to the population of the Island. 2011/12 has been another challenging but nevertheless successful year for the Authority. The operating surplus of income over expenditure for the year is reported as £5.5m (2010/11 £4.6m). The water rate increase remained at 4%. The water treatment works and sewage treatment works have all operated effectively and the Authority has progressed with the capital schemes outlined in the Regional Sewage Treatment Strategy and the Water Asset Management Plan. The main challenges facing the Authority in the coming year will be progressing with the capital schemes in-line with the budget allocation from Treasury, refurbishing existing infrastructure to extend asset life and maintaining the same quality of service to our customers with a reduced revenue allocation from Treasury. During the year the Authority has re-structured into 7-Divisions: • Water Services • Water Quality • Sewage Operations • Strategic Planning and Technical Services • Mechanical and Electrical Services • Financial Services • Project Management Services

12 A brief summary of the work undertaken by each Division follows:

Financial Services Division Functions: • Finance • Properties • Customer Services • Information Centre • Financial Modelling • Finance Committee • Financial Risk and SIC

This Division acts as the ‘back office’ of the Authority and looks after the key interfaces with Treasury and the customer and is responsible for financial risk and compliance. The Division produces the management accounts and the Audited Report & Accounts. Within the Authority the Division plays the audit role in the control of Capital Expenditure and has primary control of the Investment Management of the Sinking Fund which was set up to repay the £75M Bond back to Treasury in 2030. The Customer Services and the Information Centre Sections ensure staff and customers are kept aware of the day to day operations of the Authority. The Authority runs a 24/7 service and ensures good communications with the public and the media, which forms a critical part of ensuring that the Authority provides the best customer service possible. The Authority owns a large area of land on the Island. The control of property assets, in terms of operational requirements, compliance and safety to both our staff and the public at large, is a significant ‘back-office’ responsibility.

Mechanical and Electrical Engineering Division Functions: • Electrical • Telemetry • Fleet Management • Energy Initiatives • Asset Management

The Division provides mechanical, electrical and instrumentation support to the Water Quality and Water Services Divisions. The Division also manages the Authority’s fleet of vehicles, plant and equipment and carries out grounds and building maintenance at the reservoirs and other properties.

13 Chief Executive’s Report Continued...

Water Services Division Functions: • Water Distribution • Leakage • Mains Laying • Grounds Maintenance

Key tasks carried out by the Division are:- • To maintain the water quality and reliability of supplies • To supply water to all properties within the compulsory supply area at an appropriate flow and pressure • To supply water to those properties outside the compulsory area of supply where the owners have contracted for this provision • To continue to undertake major developments to the infrastructure in order to improve water quality in the longer term • To ensure levels of service are measured against industry ‘best practice’ and to improve the effective delivery of the service provided • To ensure safe working for our employees, contractors and the general public and to maximize the skills of the workforce through training, education and retraining, thus maintaining staff morale and capability. The Authority has an extensive network of water mains and other assets laid over many years and some date back to the Victorian period. Water mains typically have a life of 50 to 100+ years depending on the materials from which they are constructed and the ground in which they are laid. The Authority continually monitors the capacity, age and condition of its network through inspection and monitoring of the number and frequency of bursts, leakage and water quality trends, to protect and ensure secure sustainable supplies of safe drinking water. Using this information the Authority is able to identify where new capacity is required and prioritise a rolling capital programme of mains replacements.

Average Leakage Rates 2011-2012

8

7 Leakage Rate - litres per property per hour per property litres

6 Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Month

14 Water Quality Division Functions: • Water Quality • Water Production • Water Safety Plans • Laboratories – Water • Quality Assurance – ISO • Business Continuity Plans • Incident Response

The Water Quality Division comprises the Water Production and Water Quality Sections and oversees the management of the catchment areas, collection of raw water and water treatment processes. The Division is also responsible for the development of the Drinking Water Safety Plans, Business Continuity and Emergency Response Planning and the Quality Management System for the Authority and in this respect works closely and collaboratively with all other areas of the business. This will be achieved by focussing on the recreational use of reservoir lands, addressing the critical processes for refurbishment at the Sulby Water Treatment Works, addressing the succession management and key person risks throughout the Division by promoting the working principles of Quality Management which are:

• Customer focus • Leadership • The involvement of people • The process approach • The system approach to management • Continual improvement • Factual approach to decision making • Mutually beneficial relationships

99

Projects and Planning Division Functions: • Regional Sewage Treatment Strategy (RSTS) - Contracts • Capital Schemes • Programme Management • Water Mains Rehabilitation • Sewer Rehabilitation Schemes

The Projects and Planning Division comprises a small team with responsibility for the delivery of capital projects, including the Authority’s Water Asset Management Plan and Regional Sewerage Treatment Strategy Plan. The Projects and Planning Division also provides professional engineering support to the Authority’s operational Divisions. The Division manages projects from concept, through design, procurement and construction and final handover into operational service.

15 Chief Executive’s Report Continued...

Strategic Planning and Technical Services Division

Functions: • Strategy, Policy and Legislation • Risk • Flood Risk Management • Sewerage Infrastructure • Sewer Rehabilitation • Drainage Planning and Development • IT, GIS and Information Management

Strategy, Policy and Legislation The Division is responsible for the development and progression of organisational strategy and policies to meet the requirements of customers and stakeholders. The aim is to further develop and improve the way in which risk is identified, communicated and managed within the Authority. The Division will promote modern legislation to enable development of a flood risk management strategy for the Island (the Flood Risk Management Bill). The Bill also amends the Water Act 1991 such that in future, hereditaments within the compulsory area of supply, but without water, will not be charged a water rate.

Flood Risk Management The Flood Risk Management Section implements flood management strategy. The Section manages and maintains the Island’s designated Main Rivers, publishes maps of the main flood risk areas and offers advice and guidance to the public and Government on flooding matters generally.

Sewerage Infrastructure and Sewer Rehabilitation Historically, the public sewerage networks draining the Island’s towns and villages have been extended incrementally as new development has taken place, with little consideration for the downstream implications. Consequently, there are a number of areas where sewer flooding is an issue. The Division is working to identify and promote cost effective solutions.

Many of the Island’s public sewers are approaching the end of their serviceable asset lives. While current standards are good, in the past there has been a lack of consistency in construction quality for new sewers and sewerage infrastructure. The Division manages a programme of sewer rehabilitation to ensure that the Island’s critical sewerage infrastructure is fit for purpose and in serviceable condition, minimising the risk of blockages and sewer collapse. Where feasible, opportunities are identified to divert surface water away from foul and combined sewers, reducing operating costs and increasing drainage capacity. Through a programme of sewer CCTV surveys, sewer lining and leak sealing, wherever feasible ground water infiltration will be removed from the sewerage catchments draining in to the IRIS system to reduce operating costs and increase storm water capacity.

Information Technology The Information Technology (IT) Section manages the provision and development of a broad range of IT support services within the Authority, including the Geographical Information System at the core of our water network and sewerage infrastructure records management.

Planning and Development The Planning and Development Section reviews planning applications to ensure that any flood risk implications have been taken into consideration. This Section works with developers to ensure that drainage arrangements meet our technical standards, and encourages the ‘adoption’ of new sewers so that future serviceability standards can be assured and to fulfil the Authority’s statutory obligation to extend the public sewer network. The Planning and Development Section also ensures compliance with ‘population’ consent limits for sewer catchments where untreated sewage is discharged to sea. The Section manages the production and development of drainage master plans, takes an overview of the sewerage network and acts as ‘client’ on behalf of the Authority for sewerage infrastructure improvement schemes.

16 Sewerage Operations Division Functions: • Sewage Treatment • Sewerage • Sludge Treatment • Meary Veg Laboratory

The core business of the Division falls into three categories: 1. Operation and maintenance of the Authority’s assets (Pumping Stations, Sewage Treatment Works, Transmission Mains and Sludge Treatment) 2. Monitoring, maintenance and repair of the Sewerage Networks 3. Inspection of new assets and Infrastructure Works Tynwald approved the first phase of the Regional Sewage Treatment Strategy (RSTS) programme, which will provide modern treatment works for the West and North of the Island. Work has now commenced delivering this programme with the construction of package sewage treatment plants at Bride, Patrick and Dalby already in service.

Staff The Authority has a dedicated and committed workforce, employing a wide range of skills covering the whole of the Island’s water, sewerage and drainage infrastructure. I would like to place on record my thanks to all our staff for their efforts and hard work during the year in delivering a quality service to our customers.

Peter Winstanley, Chief Executive

17 Statement of the Board of the Isle of Man Water and Sewerage Authority’s responsibilities

The Isle of Man Water & Sewerage Authority is constituted under the Transfer of Functions Order 2010 as a Statutory Board of Tynwald. The Board is responsible for preparing the Chairman’s Statement, the Chief Executive’s Report and the accounts in accordance with applicable laws and regulations. The Board is responsible for preparing the Board’s Report and the financial statements in accordance with applicable law and regulations. In addition, the Board has elected to prepare the financial statements in accordance with UK Accounting Standards, as modified by any Directions issued by Treasury under the Audit Act 2006. The financial statements are required to give a true and fair view of the state of affairs of the Authority and of the profit or loss of the Authority for that period. In preparing these financial statements, the Board is required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether they have been prepared in accordance with UK Accounting Standards, as modified by any Directions issued by Treasury under the Audit Act 2006; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Authority will continue in business. The Board is responsible for keeping proper accounting records that are sufficient to show and explain the Authority’s transactions and disclose with reasonable accuracy at any time the financial position of the Authority and to enable them to ensure that the financial statements comply with the Accounts and Audit regulations 2007 to 2008, made under the Audit Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Authority and to prevent and detect fraud and other irregularities.

Officers and Professional Advisors Headquarters Tromode Road Douglas Isle of Man IM2 5PA Board Members Hon T M Crookall MHK Chairman of the Board April to November 2011 Hon Mrs C M Christian MLC President of Tynwald - Vice Chairman of the Board April to June 2011 Hon G D Cregeen MHK Chairman of the Board from December 2011 R W Henderson MHK Vice Chairman of the Board from December 2011 M R Coleman Board Member C R Coole Board Member up to February 2012 H McCallion Board Member up to February 2012 Ms E M Wisemark Board Member from February 2012 F Newton Board Member from February 2012 Chief Executive P Winstanley BEng, CEng, MICE, MCIWEM (Appointed April 2011) J A Smith BSc, CEng, MICE, MBA (Retired April 2011) Bankers Isle of Man Bank Royal Bank House 2 Victoria Street Douglas Isle of Man IM99 1NJ Auditors KPMG Audit LLC Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN Advocates Callin Wild 15-19 Athol Street Douglas IM1 1JB Investment Managers 18 Thomas Miller Investment (Isle of Man) Limited 16-17 Mount Havelock Douglas Isle of Man IM1 2QG Report of the independent auditors, KPMG Audit LLC, to the Isle of Man Water and Sewerage Authority

We have audited the accounts of the Isle of Man Water and Sewerage Authority (“The Authority”) for the year ended 31 March 2012 which comprise the Income and Expenditure Account, Balance Sheet, Cash Flow Statement, and related notes. The financial reporting framework that has been applied in their preparation is applicable law and UK Accounting Standards. This report is made solely to the Authority, as a body, in accordance with Section 4 of the Audit Act 2006. Our audit work has been undertaken so that we might state to the Authority those matters we are required to state to them in an auditors’ 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 Authority, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As explained more fully in the Boards’ Responsibilities Statement set out on page 18 the Board are responsible for the preparation of accounts that give a true and fair view. Our responsibility is to audit, and express an opinion on, the accounts in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE ACCOUNTS An audit involves obtaining evidence about the amounts and disclosures in the accounts sufficient to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to The Authority’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Board; and the overall presentation of the accounts. We report to you our opinion as to whether the accounts give a true and fair view and are properly prepared in accordance with UK Accounting Standards as modified by any Directions issued by Treasury under Section 13 of the Audit Act 2006, are properly prepared in accordance with the Accounts and Audit Regulations 2007 to 2008, made under the Audit Act 2006, and comply with the requirements of any other statutory provision applicable to them.

OPINION ON THE ACCOUNTS In our opinion the accounts: • give a true and fair view of the state of The Authority’s affairs as at 31 March 2012 and of its surplus for the year then ended; and • have been properly prepared in accordance with UK Accounting Standards as modified by any Directions issued by Treasury under section 13 of the Audit Act 2006 and the Accounts and Audit Regulations 2007 to 2008.

KPMG Audit LLC Chartered Accountants Heritage Court 41 Athol Street Douglas Isle of Man IM99 1HN

19 Income and expenditure account for the year ended 31 March 2012

Notes 2012 2012 2011 2011 £ £££

Charges for Water & Sewerage 2 27,962,485 27,579,748 Less: Cost of Water & Sewerage

Supply 3 8,440,704 7,278,166

Distribution 4 7,416,970 8,379,604

(15,857,674) (15,657,770)

12,104,811 11,921,978

Other income 5 1,349,177 866,146

13,453,988 12,788,124

Less: Indirect expenses

Management and general expenses 6 (3,894,145) (4,155,368)

9,559,843 8,632,756

Less: Financial expenditure less income

Financial expenses Interest paid on loans from Government (4,218,750) (4,218,750) Discounts/collection charges 7 (758,122) (712,459) Other financial charges 7 (235,330) (459,366) (5,212,202) (5,390,575)

Financial income Bank interest 409,045 464,365 Portfolio interest 762,503 917,937 1,171,548 1,382,302

Net financial expenses (4,040,654) (4,008,273)

Operating surplus 5,519,189 4,624,483

Profit on sale of fixed assets 5,522 11,367

Surplus for year 5,524,711 4,635,850

In both current and preceding financial periods, there were no recognised gains and losses other than those dealt with in the Income and Expenditure account. The Board consider that all results derive from continuing activities. The notes on pages 23-30 form part of these accounts.

20 Balance sheet as at 31 March 2012

Notes 2012 2012 2011 2011 £ £ ££

Fixed assets 9 174,169,885 176,193,076 Capital works in progress 10 5,111,377 1,757,645

Current assets Stocks 334,581 318,707 Debtors 11 1,864,973 2,534,443 Cash at bank and in hand 23,045,192 19,036,516 Investment portfolio 12 - 3,488,366 Sinking Fund 12 24,820,776 20,601,236

50,065,522 45,979,268

Creditors: Amounts falling due within one year 14 (3,510,104) (4,875,317)

Net current assets 46,555,418 41,103,951 Total assets less current liabilities 225,836,680 219,054,672

Creditors: Amounts falling due after more than one year Trade creditors (105,791) (31,708) Borrowings outstanding 15 (166,441,454) (165,559,640) Provisions for liabilities and charges 16 (976,400) (675,000)

Net assets 58,313,035 52,788,324

Capital reserves Capital and retained reserves 17 58,313,035 52,788,324

The notes on pages 23-30 form part of these accounts. The financial statements were approved by the Board and signed on 06 September 2012 on their behalf by

Hon G Cregeen MHK M R Coleman Chairman Board Member

21 Cash flow statement for the year ended 31 March 2012

Notes 2012 2012 2011 2011 £ £££

Net cash inflow from operating activities 18 15,450,470 15,138,895

Returns on investment and servicing of finance Interest received 18 1,179,153 1,383,620 Interest paid 18 (4,218,750) (4,218,750) 12,410,873 12,303,765 Capital expenditure Purchase of fixed assets 9 (4,321,600) (6,026,601) Capital works in progress (3,380,957) (988,471) AMP Retentions 27,212 92,388

(7,675,345) (6,922,684)

Increase in cash 19 4,735,528 5,381,081

The notes on pages 23-30 form part of these accounts.

22 Notes to the accounts year ended 31 March 2012

1. ACCOUNTING POLICIES Basis of accounting The financial statements are prepared under the historical cost convention, and in accordance with United Kingdom accounting standards. They have been prepared in accordance with the Accounts and Audit Regulations 2007 to 2008, made under the Audit Act 2006. They have also been prepared in accordance with the Isle of Man Statement of Recommended Practice 2007 on accounting for entities subject to the Audit Act 2006 (“the SORP”), to the extent applicable to the Authority. The principal accounting policies used in preparing the financial statements are described below: Fixed assets Expenditure on fixed assets is depreciated using a straight-line method over the estimated operating lives of the assets, that are principally as follows: Original sewerage mains 70-100 years Raw water mains / relined sewerage mains 30-60 years Pump station improvements 25 years Distribution assets (service reservoirs and treated water mains) 30-60 years Freehold property and improvements 25-50 years Other assets (vehicles, telemetry and IT equipment, computers, plant) 3-10 years New Water Treatment Works improvements 60 years buildings, 20 years installation work, 10-20 years mechanical assets, 5-15 years electrical assets Expenditure on assets in the course of construction is included in capital works in progress. Assets in the course of construction are not depreciated until they are commissioned. Commissioning is deemed to occur when a new works/construction is formally taken over from the contractor and is put into operational use. Treated water mains are renewed/replaced as an ongoing process and depreciation commences once laid. A full year’s depreciation is applied in the year in which the asset is either purchased or put into operational use. No depreciation is charged in the year of disposal or shutdown. No depreciation is charged on the value of land or impounding reservoirs. There is a £3,000 minimum on all plant and assets, purchases below that value are taken to the revenue account in the year of purchase. Non-working assets All non-working assets with a Market Valuation in excess of £5,000 are valued in the accounts at current Market Values as per SORP 2007. Stocks Stocks are valued on a First In First Out (FIFO) basis and provision made for obsolete, deteriorated or unusable stocks that are valued at the lower of written down value and net realisable value. Bad debts The bad debt provision against un-metered charges is calculated by applying recovery rates to an aged-debt profile. The bad debt provision for all other debts is obtained by considering the recoverability of individual debts. Customer capital contributions Customer capital contributions received are deducted from the costs of the related fixed assets. Finance costs Finance costs incurred when the Bond was issued are amortised on a straight-line basis through the Revenue Account over the life of the Bond. The deferred finance charge on the balance sheet is subject to additional amortisation where profits on the sale of investments are realised in the accounting period. The amount of additional amortisation is equal to the realised profits on the investments sold. Investments Investments which are intended to be held to maturity are valued at amortised cost. Equities are re-valued to market value at the balance sheet date and any gains or losses on revaluation are taken through the Income and Expenditure Account. Turnover Turnover comprises income from charges for water supply and distribution together with an annual Treasury grant to Sewerage. Both are accounted for during the year on an accruals basis.

23 -- 15,989,072 1,937,899 - 1,406,527 - 119,385 £ 8,150 259,623 665,466 746,761 665,466 866,146 2011 -- 7,195,777 2,457,000 7,195,777 2,457,000 81,295 119,385 715,298 1,764,008 2,479,306 207,346 251,473 490,521 858,656 - 1,987,184 1,937,899 - 1,695,893 1,406,527 - - 16,876,630 15,989,072 £ 2012 -- 6,641,671 2,457,000 6,641,671 2,457,000 Continued... 87,925 402,596 Water Sewerage Combined Water Sewerage Combined 741,912 1,624,540 2,366,452 946,581 402,596 1,349,177 200,680 904,680 2,069,137 2,973,817 1,189,131858,656 1,861,705 3,050,836 185,838 21,508 2,364,070 1,530,075 3,894,145 2,037,020 2,118,348 4,155,368 1,673,171 2,097,8232,521,617 3,770,994 2,528,901 1,800,436 5,050,518 1,020,367 2,568,545 2,820,803 3,331,753 5,900,298 4,273,744 4,166,9603,263,529 8,440,704 4,153,441 4,396,094 7,416,970 2,882,072 3,283,843 7,278,166 5,095,761 8,379,604 1,987,184 1,695,893 2,178,232 1,508,567 3,686,799 1,785,547 2,110,198 3,895,745 18,863,814 9,098,671 27,962,485 17,926,971 9,652,777 27,579,748 16,876,630 Notes to the accounts year ended March 31 2012 Sewerage charges are for Revenue and Loan advances from Treasury. The annual water rate was 276.04p in the 265.43p£ (2011: in the £) with commercial and selected other properties at half rates Metered Revenue Advance from Treasury Maintenance and reservoirs 2. Charges for Water & Sewerage Unmeasured Receipts Treasury to pay Loan Repayments due 3. Supply Filtration and treatment Depreciation charge in year 4. Distribution Mains and general distribution Depreciation charge in year 5. Other Income Net profit on chargeable work Rents and miscellaneous 6. Management and General Expenses Administration and general Depreciation charge in year The total rateable value of properties charged under unmeasured water usage was £6.5M)£6.5M (2011: 24 £262,438). (2011: £1,519,665 of income to relates work chargeable Water on profit Net 7,961 2,409 41,628 60,978 (9,352) - 651,481 - 712,459 - - -- 200,000 - 672 £ 216,720 216,720 217,392 459,366 2011 - 7,961 1,737 41,628 60,978 (9,352) 651,481 712,459 7,420 2,409 1,267 200,000 64,217 36,108 (6,537) 194,663 693,905 758,122 235,330 241,974 ------£ 50 544 362 544 6,610 £ 6,648 6,725 Salary 21,071 75,058 2012 - 194,663 1,217 2,047 7,420 64,217 36,108 Water Sewerage Combined Water Sewerage Combined 40,255 195,075 (6,537) 693,905 758,122 Continued... Retired Retired February 2012 Retired February 2012 Elected February 2012 Elected February 2012 Re-elected February 2012 Board Board Member Board Member Board Member Board Member Chief Executive Board Board Member Mr M R Coleman Mr C H Coole Mr H McCallion Mr F Newton There There were 4 Water senior - managers 4). paid between £50,000 and £55,999 (2010/11 There were 2 – Sewerage senior managers paid between £50,000 and (2010/11 £61,999 2). Discount/Collection Charges The political Members of the Board are paid directly from Government. Amounts shown above are the payments made by to the Board Water Members. & Sewerage Authority in 2011/12 Mr P Winstanley 7. Financial Expenses Discounts allowed Collection charges Other Financial Charges Bank charges Interest charges on Local Authority Loans 8. Remuneration of Board Members and Senior Management The of remuneration the Board Members and Senior Management who served during the year is set out below: Ms E Wisemark Audit fees Investment management fees Bond (release)/costs Increase Increase in provision for bad debts Notes to the accounts year ended March 31 2012 25 - £ - £ - 297,666 £ 2011 - £ 4,416 1,455,563 1,459,979 - £ Other Water Total Sewerage Total Combined 341,653 297,666 - £ - £ 38,169 237,938 1,597,905 2,723,695 4,321,600 Property 2012 6,482,251 340,735 83,199,285 92,993,792 176,193,077 8,434,288 6,134,755 105,889,822 122,561,570 228,451,392 1,952,0373,036,985 5,794,020 6,001,366 22,690,537 25,291,458 29,567,778 52,258,315 33,311,649 58,603,107 1,084,948 207,346 5,435,472 2,600,921 371,327 3,743,871 82,196,269 6,344,792 91,973,616 174,169,885 8,472,457 6,372,693 107,487,727 125,285,265 232,772,992 Continued... - £ Water Sewerage Combined Water Sewerage Combined 341,653 2,422,525 2,688,852 5,111,377 302,082 1,455,563 1,757,645 2,080,872 2,688,852 4,769,724 - £ 215,255 3,822,832 - £ 7,406 Supply Treatment Distribution 225,628 2,460,418 2,366,452 2,151,317 15,614,881 26,746,060 2,376,945 18,075,299 29,112,512 23,710,773 52,591,148 92,061,165 26,087,718 26,087,718 70,666,447 121,173,677 26,080,312 70,451,192 117,350,845 23,928,995 54,836,311 90,604,785 Notes to the accounts year ended March 31 2012 Treatment fixed Treatment assets works in progress 10. Capital 10. work in progress Distribution fixed assets works in progress The to reflects the movement 2012 new in service work and reservoirs in ongoing from 2011 progress associated raw water mains. Additions In the current period there were no recognised gains or losses other than those dealt with in the revenue account. Non-working assets due for disposal have been to transferred a property reserve inside the Sinking Fund prior to disposal. Amounts provided to write down fixed assets April 01 2011 Net Book Value 26 9. Fixed Assets At cost April 01 2011 Disposals March 2012 31 Charge for period March 2012 31 March 2012 31 March 2011 31 - - - - - 24,089,602 - 24,089,602 - - 23,189,231 --- 2,515,967 1,362,000 5,078,607 - 182,136 -- 24,089,602 15,133,028 - - 20,601,236 - 3,488,366 - (350,000) - - - 864,000 - 350,000 - 900,371 £ 315,271 2,534,443 156,632 220,734 158,639 1,267,573 2011 - - - - 64,102 900,371 - 3,488,366 - (350,000) - 350,000 471,323 1,108,934 921,600 864,000 731,174 177,826294,224 182,136 - (6,000,000) - 6,000,000 -- 24,820,776- 24,089,602 24,820,776 24,089,602 - -- 1,362,000 1,127,005 1,362,000 5,078,607 - - 24,089,602- 23,189,231 6,000,000 -- 2,392,206 6,000,000 2,515,967 - -- 24,820,776 13,939,565 24,089,602 15,133,028 - 18,820,776 20,601,236 - - £ 2012 - - - 72,415 221,809 Water Sewerage Combined Water Sewerage Combined 921,600 429,501 41,822 731,174 177,826 1,601,342 263,631 1,864,973 2,219,172 6,000,000 1,362,000 1,127,005 6,000,000 2,392,206 6,000,000 24,089,602 24,820,776 24,820,776 24,820,776 13,939,565 (6,000,000) Continued... Fixed Bank Deposits Managed Fund & Properties 18,820,776 Represented Represented in the Balance Sheet as Investment portfolio All non-working assets with a Market Valuation in excess of £5,000 are valued in the accounts at Current Market value as per SORP 2007. Movement of property portfolio Withdrawals Property portfolio Cash balances Accrued meter income Made up as follows: Fixed interest securities Equities 11. Debtors 11. Accrued interest receivable VAT recoverable 12. Investment Portfolio Balance brought forward Cash invested in Fixed Term Bank deposits Value of investment portfolio at end of year Fixed Term Investments Debtors Debtors are stated net of provision for £800,000) doubtful debts of £1,000,000 (2011: Transferred from cash Transferred to Sinking Fund portfolio Debtors Investment returns Notes to the accounts year ended March 31 2012 27 - 31,708 - - 75,000,000 --- 568,077 106,923 675,000 - - 1,664,943 £ 27,179 1,181,134 523,195 523,195 139,668 380,048 2011 - 3,600,000 3,600,000 -- 86,590,501 86,590,501 - (154,056) (154,056) - 31,708 568,077 - 105,791 518,331671,842 1,664,943 1,153,955 601,305 345,250 240,380 737,896 675,000 976,400 675,000 - - -- (299,905) 106,923 - 75,000,000 75,000,000 - - £ 2012 - 3,589,862 3,589,862 -- 87,113,696- 737,896 87,113,696 Continued... 82,990 22,801 34,787 637,055 Water Sewerage Combined Water Sewerage Combined 518,331 601,305 155,993 189,257 675,000 976,400 608,997 1,365,684 1,974,681 564,328 1,084,864 1,649,192 (299,905) 1,318,108 2,191,996 3,510,104 3,623,606 1,251,711 4,875,317 75,000,000 75,000,000 91,441,454 166,441,454 75,000,000 90,559,640 165,559,640 Notes to the accounts year ended March 31 2012 Local Authority Loans taken on at merger Loan re Sewerage take-on Sewerage loan movement in year £75,000,000 relates to a bond issue undertaken by Government on behalf of Interest the is Authority. payable annually at 5.625% and the bonds are repayable in 2030. The Authority has guaranteed that it will meet all costs in relation to carried the forward bonds. re Sewerage loans The to £87,113,696 Government is to cover capital works infrastructure paid for via Government and repaid over a 30 year period or where otherwise directed for The repayment by Local Treasury. Authority Loan accounts are for obligations taken on in respect of sewer mains/assets to transferred Sewerage from Local Authorities pre 2007. All Sewerage assets are funded via Loan Treasury Advances and shown are therefore as a creditor at year end. Released to Revenue Account in year The provison at the year end a represents proportional estimate of the costs which the Authority expects to incur when the existing water treatment works are decommissioned. It is anticipated that this reserve will be utilised over the next 2 years in the decommissioning of 5 old works and associated service no reservoirs longer in use. 13. Sinking Fund The Sinking Fund will be used to repay the Authority's borrowing in 2030. The Sinking Fund is segregated from the other cash balances and investments of the Authority and at the year end the managed fund (£17,458,776) was invested in fixed interest securities, equities and cash. Equities may not form greater than 15% of the Sinking Fund. Additional Sinking Fund assets self-managed are £6 million and are held in Fixed Term Bank deposits in the name of IOM WASA and non-operational properties held awaiting disposal (£1,362,000). 14. Creditors: Amounts falling due within one year on Payments account Accruals and deferred income Creditors: Amounts falling due after more than one year Retentions on capital projects 15. Borrowings Outstanding Government advances Balance brought forward Local Authority Loans repaid in year Balance carried forward 16. Provisions for liabilities and charges At 1 April 2011 Released to Revenue Account in yearAt March 2012 31 At March 2012 31 28 creditors Trade Amounts due to Isle of Man Government 9,352

- (81,732,615) - 1,089,355 - 4,218,750 - 43,853,491 - - (37,072,828) - (1,383,620) 0 14,272 £ 4,671 4,635,850 4,671 4,635,850 2011

- - 3,209,628 3,209,628 -- (86,590,501) (523,195) (86,590,501) (523,195) 9,352 14,272 Water Sewerage Combined 703,952 393,741 1,097,693 572,420 941,025 1,513,445 (40,956) (154,056) (195,012) - 1,089,355 - - 6,537 412,211 155,114 229,378 (163,578) (158,637) (322,215) (15,873) - - - 4,218,750- 4,218,750 - - - (1,179,153) (1,383,620) £

116,817 353,211 (239,460) 401,246 3,997,632 143,916 2012 - - - - (737,896) (737,896) 6,537 Water Sewerage Combined 112,561 268,295 (15,873) (592,671) 2,600,921 3,743,871 6,344,792 2,767,208 2,792,524 5,559,732 4,218,750 3,596,386 6,068,995 (544,284)6,068,995 5,524,711 (544,284) 4,631,179 5,524,711 4,631,179 3,589,8493,596,386 1,139,142 1,139,142 4,728,991 4,735,528 5,110,704 5,120,056 261,025 261,025 5,371,729 5,381,081 10,354,343 5,096,127 15,450,470 11,319,627 3,819,268 15,138,895 49,574,025 3,214,29955,643,020 52,788,324 2,670,015 43,853,491 58,313,035 49,574,025 3,214,299 52,788,324 (1,127,482) 1,282,596 (1,179,153) (31,952,772) (86,852,671) (118,805,443) (37,072,828)

(28,356,386) (86,451,425) (114,807,811) (31,952,772) (86,852,671) (118,805,443) Continued...

29 Notes to the accounts year ended March 31 2012 Property Property revaluation reserve Change in net debt Balance as part of Sewerage take on 01/04/2010 Depreciation charges in (Increase)/Decrease stocks Revaluation of non-working assets as recommended under UK SORP. There has been no movement in the revaluation reserve during the year and to the 31/03/2012 reserve remains at £1,089,355 as at year end. Debt to Government at take on of sewerage operation 17. Capital and Retained Reserves Balance brought and carried forward Surplus for the year Balance carried forward 18. Reconciliation of surplus for the year to net cash inflow from operating activities Surplus for year Interest paid Net cash inflow from operating activities 19. Reconciliation of Net debt Increase in cash Release of Bond purchase costs Increase in Cash/Bond Purchase Costs Movement in year of Government loan Net debt brought forward Net debt carried forward Increase Increase in debtors (Decrease)/Increase in (Decrease)/Increase creditors Decrease Decrease in Govt debtors Interest Interest received Increase Increase in provisions for liabilities and charges - £ - (75,000,000) - 24,998,589 - £ - (87,851,592) (87,851,592) - £ - £ - (75,000,000) (75,000,000) £ £ Continued... 3,670,502 (3,670,502) 01/04/11 Cash Flow 31/03/12 Water Total Sewerage Total Combined Total 19,036,515 4,008,677 23,045,192 21,645,025 1,400,167 23,045,192 20,601,236 4,397,353 24,998,589 24,998,589 43,308,253 4,735,528 48,043,781 46,643,614 1,400,167 48,043,781 (87,113,696) (737,896) (87,851,592) (75,000,000) (118,805,443) 3,997,632 (114,807,811) (28,356,386) (86,451,425) (114,807,811) Notes to the accounts year ended March 31 2012 Cash at bank and in hand interest) (incl portfolio Investment 20 . Analysis of changes in Net debt 20 Investments) Bank (incl Fund Sinking Government loan Sewerage Capital 21. Commitments There are now no current Capital commitments with the exception of retentions being held as totalling at £207,306 March 2012. 31st at (£261,592 March 2011) 31st 22. Staff Scheme Pension The Isle of Man Government operates final salary pension schemes for both Civil Servants and Whitley Council Staff who work at the Under Authority. the terms of this arrangement, the Authority only has a liability to pay a fixed contribution to the Government in relation to its employees. All liabilities relating to pension arrangements have been therefore included in the financial statements. Under the provisions of the Civil Service Scheme, as of the April Authority 2007 contributes 22% of the employee's pensionable pay and the employee contributes 1.5% (unless he or she has opted to buy additional years of service up to a maximum of 40 years by paying a higher contribution). Under the provisions of the Whitley Council Scheme, As of the April Authority 2007 contributes 18% of the employee's pensionable pay and the employee contributes 5%, with similar options for purchasing additional years of service. Amendments to the scheme including increasing employee contributions by 1% per annum (to a maximum of 9.75% and with certain age concessions) were introduced as at 1st April 2012. 23. Related party disclosure With the exception of the Bond Treasury loan already disclosed and monthly payroll and revenue transactions between the Water Authority and Isle there were no of sums Man due Treasury, to or from any related parties as at 31/03/12. 30 Government loan Water Meetings and sites/works visits and staff briefings 1 April 2011 to 31 March 2012

March 31st 2011 to Board Audit Investment Capital Finance Visits to Health and Presentations April 1st 2012 Meetings Committee Committee Programme and Treasury Sites/ Safety Meetings Meetings Steering Meetings Works Council Group Meetings Meetings

T M Crookall 6 + 27 meetings ---21-1 with Chief Executive

Mrs C Christian MLC 2 ----1-1

G D Cregeen MHK 4 + 18 ---22-1 meetings with Chief Executive

R W Henderson MHK 3 ------1

M R Coleman 9 33122-2

C R Coole 8 1110 11 1 1

H McCallion 8 33911-1

Ms E M Wisemark 2 ----1-1

F Newton 2 --1-1-1

Number of Meetings held during the year 10 3311 43 1 2

Hon T M Crookall MHK Chairman of the Board from May 2009 to November 2011 Hon Mrs C M Christian MLC Vice Chairman of the Board from May 2009 to July 2011 Hon G D Cregeen MHK Appointed as Chairman of the Board in December 2011 R W Henderson MHK Appointed as Vice Chairman of the Board in December 2011 M R Coleman Appointed as a Board Member in January 2002 C R Coole Board Member from January 2002 to February 2012 H McCallion Board Member from January 2002 to February 2012 Ms E M Wisemark Appointed as Board Member in February 2012 F Newton Appointed as Board Member in February 2012

31 The information in this report can be provided in large print on request

Isle of Man Water & Sewerage Authority Tromode Road Douglas Isle of Man IM2 5PA Telephone 01624 695949 Fax 01624 695956 Email [email protected] or [email protected] Website www.gov.im/water Allan Brown IOM WSA

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