Annual Report 2011 Contents
2 Executive Summary 4 Operational Review 16 Financial Review 18 Corporate Social Responsibility 21 The Executive Team 22 Directors & Advisors 23 Directors’ Report 25 Corporate Governance 29 Directors’ Responsibilities Statement 30 Independent Auditor’s Report 32 Consolidated Profit & Loss Account 33 Consolidated Balance Sheet 34 Company Balance Sheet 35 Consolidated Statement of Total Recognised Gains & Losses 35 Reconciliation of Movements in Consolidated Shareholders’ Funds 36 Consolidated Cash Flow Statement 37 Notes to the Consolidated Cash Flow Statement 39 Notes to the Accounts 68 Five Year Summary 69 Contact Details
1 South Staffordshire Plc Executive Summary The year has seen successful operational delivery in South Staffs Water and a number of new opportunities in our service businesses.
South Staffordshire Plc is an integrated The severe winter put pressure on the Echo group operating in the water sector with operation, however it is a testimony Echo provides customer contact services a highly regarded regulated water supply to the staff and contractors that the in regulated markets. During the year business coupled with the provision of interruptions to supply were kept to Echo continued to provide high levels related non-regulated specialist services. an absolute minimum and the leakage of service to its customers, whilst The Group has had another successful target for the year was still achieved. expanding the client base for its billing year with the water industry entering The year has also seen the introduction and customer care software, RapidXtra the new five year AMP period which by Ofwat of a new measure of customer and further expanding the debt has resulted in a period of successful satisfaction and the Company is ensuring collection services provided. operational delivery in South Staffs that it is responding positively to the Water, coupled with a number of new challenge of continuing to provide an Group Results opportunities arising in our non- excellent service to our customers. For the year ended 31 March 2011, regulated service businesses. turnover increased by 12% to £159.5m, SSI Services with operating profit of £28.1m being South Staffs Water SSI Services provides a range of specialist achieved, which was ahead of our South Staffs Water continued to provide infrastructure maintenance services in a expectations at the start of the year. high levels of service to its customers, regulated environment, predominantly This reflected the reduced cost of capital coupled with an efficient operation and in the water sector. The start of AMP5 allowed by Ofwat for this five year low charges, with domestic charges resulted in increased activity, particularly period announced in November 2009, remaining 25% below the industry in the second half of the year and saw offset by further cost savings in South average. a number of important contracts being Staffs Water, together with new contracts secured. In addition there were a being awarded in our non-regulated number of bolt-on acquisitions in the companies. year to broaden the geographic coverage of our activities.
2 Annual Report 2011
Management and Employees There have been a number of changes to the Executive Team in the year with the appointment of Liz Swarbrick, who has been with the Group for over 20 years, as Managing Director of South Staffs Water following the retirement of Jack Carnell, together with the appointment of Andrew Garcia as Managing Director of SSI Services.
Our employees are a key asset of the South Staffs Group and we fully recognise the Water achieved significant contribution from them in its leakage achieving the successful year that we target set by have had. Ofwat for 2010/11. Outlook The Group is well positioned in each of our businesses to have another good year, meeting the challenges we face and maintaining the high standards that we set.
3 South Staffordshire Plc Operational Review South Staffs Water’s domestic customers continue to pay the third lowest water bills in England and Wales.
4 South Staffs Water again maintained very high drinking water standards.
5 South Staffordshire Plc
South Staffs Water is proud to be The business’ Overall Performance Historically water companies’ service recognised as one of the leading Assessment (OPA), as measured by the performance has been assessed using the companies in a challenging sector, industry regulator Ofwat, continues OPA as detailed above. The measure has where the need to ensure a continuous to reflect excellent levels of service, served the industry well in incentivising supply of safe and clean water, coupled with scores that remain well above the improved performance year-on-year. with excellent value and customer industry average. For more than ten In the future, whilst the majority of service, is of paramount importance. consecutive years South Staffs Water the regulatory targets which underpin This recognition is largely based upon has been represented in the top five the OPA will still need to be achieved, the business’ consistent track record in the industry, an achievement that Ofwat have introduced a new measure, of providing excellent value to its was recognised by Ofwat in the recent the Service Incentive Mechanism (SIM) customers, combining high levels of Periodic Review in awarding South Staffs which is based on assessing levels of service and efficiency with low charges. Water a premium for its high levels of customer satisfaction. There has been service. Although Ofwat are no longer much work done in the year to review Consistent with the business’ long- using the OPA for regulatory purposes our processes and systems in order to term Strategic Direction Statement that in the future, the provisional results for enhance the experience and satisfaction underpins the recent regulatory Periodic 2010/11, which represent our highest of our customers when they have contact Review, South Staffs Water’s strategy score, would also have been excellent, with us on billing or operational matters. is based on the 3Cs which epitomises especially taking account of the effects the three main drivers for the decisions of severe weather impacting on the pipe The year has seen many challenges not that South Staffs Water makes and the network. least of which was an early winter with policies that it adopts. The balancing an unprecedented severity of weather of the 3Cs drivers is not always South Staffs Water is also recognised conditions. Despite this, customer straightforward, particularly with the for being one of the most efficient in disruptions in the distribution system carbon agenda gaining pace. the sector and is ranked in the top band were kept to a minimum by the hard for efficiency by Ofwat. For operating work and fast response of our staff The 3Cs represent:- costs South Staffs Water attained upper and contractors. Through all of these Band A efficiency status in the recent efforts our performance in this area has • Customers – provide an excellent Periodic Review (2009). This is the been excellent with achievement of the customer service. highest banding possible to achieve reduced leakage target and the reporting • Costs – control costs to maximise and it is South Staffs Water’s intention of low numbers of prolonged supply business efficiency. to maintain this position. Whilst costs interruptions. • Carbon – reduce carbon footprint. continue to be very carefully controlled and further savings are being achieved, South Staffs Water’s domestic customers the cost base is also being influenced by continue to pay the third lowest water factors outside of the business’ control bills in England and Wales, with the such as power and fuel costs and a average of £126 being 25% below the volatile inflation rate. industry average.
6 Annual Report 2011 South Staffs Water is ranked in the top band for efficiency by Ofwat.
During the period, the business complied stable asset serviceability and good South Staffs Water is proud of its with 99.983% of all tests carried out quality, reliable supplies to customers. achievements and is determined to on drinking water supplies. The result Capital expenditure for the year of remain one of the best companies in continues the trend of high compliance £28.0m is slightly ahead of the amount the industry based on the provision of rates achieved by the business over a included in the 2009 Ofwat Final excellent value to its customers with number of years. Whilst overall the Determination. continued high levels of service and business’ water resource position is very efficiency. This will only be possible healthy, both the summer and winter In the past couple of years, a through the continued hard work and weather conditions provided challenges comprehensive review of the business’ support of our employees, suppliers and in the balancing of those resources. current and future IT capabilities has contractors. been undertaken to ensure the business With the year being the first of a can continue to be efficient in its new AMP period (2010/15), much operations and meet customers’ rising work has been undertaken on our service expectations now and into the procurement, contracting and AMP5 future. This review identified further capital investment delivery strategies investment in systems over a number of which has seen us deliver significant years to provide better information for efficiency savings within the capital customers and improve response times programme. The business put significant regarding operational job activities and effort into the production of a robust to sustain high operational efficiency. business plan for 2010/15 and is now in the process of delivering the plan’s operational strategies to ensure that the business continues to operate efficiently and provide the service standards that customers expect. The business has made good progress in delivering its capital programme to ensure its assets remain in good condition, maintain
7 South Staffordshire Plc
OnSite continues to SSI Services is committed provide leading edge sewer lining services. to providing market leading specialist services by developing long-term relationships with its customers.
including:
Wat er Network Efficiency
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9 South Staffordshire Plc
SSI Services is the Group’s specialist contracting division and provides a range of specialist services from installation, testing and repair to long-term maintenance capabilities. The business, through its operating companies, works in regulated environments and serves the public and private sector from water utilities through to the Environment Agency and Local Authorities and works across the water, wastewater and water hygiene markets.
The businesses within SSI Services include IWS, Hydrosave and Pipeline Services (now part of IWS) which operate within a clean water environment, with IWS also having a specialist water hygiene business, as well as OnSite and Perco which operate within the wastewater sector.
SSI Services is committed to providing market leading specialist services in a highly regulated environment by developing long-term relationships with its customer base.
The year saw the start of AMP5 in the water sector with a gradual increase of work as experienced at the start of previous cycles, coupled with the impact of the austerity measures being implemented by Government departments and Local Authorities alike. As a whole the division finished the year in line with expectations. In IWS has undertaken addition during the year, the division major pumping equipment also undertook a number of bolt- maintenance work.
10 Annual Report 2011
on acquisitions in order to broaden IWS offers Mechanical and Electrical OnSite continues to be at the forefront of the geographical coverage of its (M&E) Services to the Clean Water technology with on-going developments water hygiene, wastewater and leak market as well as providing Water being made in not only specialist CCTV detection activities. All of these have Hygiene Services (WHS), which comprise capabilities, but also in flow monitoring been successfully integrated in to their a broad range of legionella maintenance, technologies where our own in-house respective operating companies. remedial and risk assessment services, resources have made the OS8000 a principally to Local Authorities. IWS market leader offering technical as well Clean Water Services had an excellent year with all parts of as operational advantages through the Hydrosave, which specialises in the business expanding their areas of use of multiple sensors, mobile telephony providing leak detection and water operation such that with the acquisition and the internet to its expanding client conservation services had a very strong of Ion in Scotland, IWS are able to offer base on a more timely basis and has now year with demand from all of its core a national capability. been used across the majority of WASCs customers exceeding anticipated levels, in the UK. in part due to the adverse winter weather The M&E business has undertaken but also the increasing challenges being some significant projects over the year In addition we continue to provide set by Ofwat’s leakage targets. The including the removal, maintenance leading edge sewer lining services management team has done well in and re-installation of major pumps for through our specialist unit based keeping pace with demand on resources Anglian Water. The Coal Authority in Challow, Oxfordshire, with new without sacrificing the quality of service remains an important client for the framework contracts having been signed through effective recruitment and business and demonstrates the breadth with Wessex Water and continued high training programmes. and depth of capabilities and services volumes of work with other WASCs. available in managing and maintaining The business has continued to build its critical infrastructure. Perco, our no-dig technology specialist presence across the water utility and is recognised as a market leader in commercial sector having secured a Wastewater Services undertaking specialist projects where number of major contracts as a 1st or OnSite which offers specialist wastewater auger boring, pipe-bursting, UV-CIPP 2nd tier contractor including those with services including flow monitoring, lining, directional drilling and micro Severn Trent and South East Water and sewer rehabilitation, CCTV surveys tunnelling are required. has continued to grow its relationship and a 24/7 reactive sewer maintenance with Veolia Water and Scottish Water. capability experienced the usual slow Looking ahead, the division has the start to the AMP5 cycle as its customer ability to offer our water sector and Pipeline Services, which undertakes base is principally Water and Sewerage other infrastructure owning clients a new lay, repairs, maintenance and companies (WASCs). In recognition of more integrated approach to providing replacement of clean water pipes as this OnSite has expanded its resources specialist solutions. The increase in well as destructive and non-destructive that are able to serve a wider range of AMP5 workloads in a number of our quality testing of water mains had a customers, including British Waterways, activities are anticipated leaving the successful year in large part due to the Environment Agency, an increasing division well placed to deliver further the winning of the South Staffs Water number of Local Authorities and the success in 2011/12. Network Maintenance contract. Highways Agency.
11 South Staffordshire Plc At the heart of Echo’s strategy is the ability to understand the challenges faced by clients and work in partnership to address them.
One of Echo’s priorities has been to support clients with Ofwat’s new customer satisfaction measurement, SIM.
12 Annual Report 2011
13 South Staffordshire Plc
Echo provides customer contact management services resolving customer queries.
14 Annual Report 2011
Echo Managed Services is a leading During the year Echo was awarded Looking to the future Echo will be provider of customer process a contract to deliver RapidXtra to focussed on operational delivery and management services focussed on Portsmouth Water, water supplier to growing the business further including regulated markets. Echo provides 303,000 homes and businesses in the joint opportunities arising from the customer contact management city of Portsmouth and surrounding recent acquisition of Inter-Credit. services, resolving customer queries areas of southern Hampshire and West Echo will also build on its position in and issues, as well as a billing and Sussex. RapidXtra’s powerful CRM Northern Ireland, where it is already revenue management service, including functionality, which helps improve, track established as one of the leading service its proprietary RapidXtra billing and and measure the customer experience, providers. Echo will also be supporting customer care software. combined with continued investment in clients through SIM with the need to R&D were key to securing the contract. reduce ‘unwanted’ contacts and ‘getting At the heart of Echo’s strategy is the it right first time’ at the heart of Echo’s ability to understand thoroughly The acquisition of a debt management approach. the challenges faced by clients and a business was another of Echo’s key commitment to working in partnership priorities for the year. London based to develop solutions to address them. debt collection agency, Inter-Credit One of Echo’s main priorities this year International is an excellent strategic has been to support clients as they work fit for Echo and its acquisition further through the pilot year of Ofwat’s new strengthens Echo’s debt collection customer satisfaction measurement, SIM. offering. Inter-Credit provides Echo has worked closely with clients to exceptional collection services for understand the requirements of SIM and its clients, principally comprising to embed those requirements into both governmental agencies and water water customer service teams and the utilities. RapidXtra product, ensuring that Echo is continually driving improvements in As 2010 drew to a close, Northern the customer experience. Ireland was hit with severe weather conditions the likes of which had not been seen for over a 100 years. Echo worked closely with its client, Northern Ireland Water, to deal with the dramatic impact on customers and continues to collaborate on new initiatives which will help support customers in the event of similar incidents occurring in the future. Echo also secured a further contract extension for NI Direct and has continued to work closely with the client as they shape the future of the service.
15 South Staffordshire Plc Financial Review The Group exceeded its financial targets despite difficult conditions reflecting its commitment to cost efficiency.
The Group has exceeded challenging The Group’s operating profit (before South Staffs Water generated an targets set at the start of the year for goodwill amortisation) of £29.6m was exceptional profit on the sale of land both profitability and cash generation ahead of our expectations and broadly in of £1.5m in the year, which has been despite significant inflationary cost line with last year (£29.4m). reported after operating profit. pressures, the continuing uncertainty in the UK economy and the coldest winter South Staffs Water’s operating profit was Finance charges (net of interest on record which impacted operations. £21.7m (2010:£23.1m) with a reduction receivable) reduced to £8.7m (2010: in the cost of capital allowed by Ofwat £9.7m) in the year with the reduction Turnover and Profit for AMP5 (5.7% to 4.9%) and the full principally due to lower non-cash finance Turnover (including the Groups share of year impact of a new power contract charges associated with the defined its Joint Ventures) increased by £17.0m which commenced in October 2009 at benefit pension scheme partly offset (11.9%) to £159.5m (2010: £142.5m). higher prices partly offset by the allowed by higher interest charges on inflation- increase in charges and reductions in linked debt. Overall, profit before tax South Staffs Water’s turnover increased other operating costs reflecting the increased from £18.6m to £20.8m. from £86.1m to £87.8m, primarily due businesses commitment to maintaining to the price increase allowed by Ofwat of cost efficiency. Dividends 1.5% (plus inflation). As expected, dividends of £18.7m Non-regulated operating profit increased were paid or proposed in respect of Non-regulated turnover increased by by 23.5% to £6.4m reflecting profits 2010/11 (2010:£18.4m). In addition, a £15.2m to £71.6m, with the increase arising from acquisitions made in the final dividend of £10.1m in respect of being partly the result of acquisitions year and increased trading in the existing 2009/10 was paid and proposed in the made during the year and higher trading business. Total Group operating profit year reflecting better than expected cash activity as demand from our main (after goodwill amortisation) was flows and levels of debt in 2009/10. customer base increased in the second £28.1m (2010:£28.3m). half of the year, due mainly to 2010/11 being the first year of the AMP5 capital investment period in the water sector.
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Cash Flow & Debt Group net debt (book value) at 31 Standard and Poors continues to rate Cash flow from operating activities March 2011 amounted to £281.7m South Staffs Water as BBB+, well within increased to £56.4m from £44.2m (2010:£264.8m). This differs from the investment grade. mainly as a result of slightly higher value used for borrowing covenant operating profits before goodwill reporting purposes of £266.5m Pensions amortisation and lower working capital (2010:£247.4m) which excludes As at 31 March 2011 the actuarial requirements in the year, which were unamortised premium and costs and valuation of the Group’s final salary better than our expectations in a very uses actual inflation at the relevant dates pension scheme (prepared in accordance challenging environment and reflects as opposed to the long-term inflation with FRS 17) showed a post tax surplus the Group’s ongoing commitment to assumption used in the book value of of £11.8m (2010: deficit of £4.0m), with prioritise cash flow and keep working index-linked debt. The increase in the the significant year-on-year movement capital at efficient levels. covenant value from March 2010 of principally reflecting an increase in the £19.1m mainly reflects higher values value of the scheme assets reflecting The Group’s net cash interest payments for index-linked debt, due to high levels the improvement in world-wide equity increased by £0.4m to £3.5m mainly of inflation during the year and higher values coupled with a reduction in the due to higher inflation-linked interest drawings on credit facilities. present value of scheme liabilities which payments. incorporate actuarial assumptions. South Staffs Water’s net debt for Capital expenditure (net of disposals covenant reporting purposes was A P Page and capital contributions) was £28.7m £174.6m (2010:£161.6m) representing Group Finance Director compared to £21.4m last year, an 73.2% (2010:73.7%) of its Regulated 27 May 2011 increase of £7.3m, mainly reflecting the Asset Value (RAV) of £238.5m (2010: expected increase in South Staffs Water £219.4) being the Final Determination as it entered the first year of the AMP5 RAV uplifted for inflation. This ratio investment period. Its total expenditure reflects the higher than expected level of (net of contributions) of £28.0m inflation (RPI) at March 2011 of 5.3%, was slightly ahead of Ofwat’s Final which is used to inflate RAV, whereas Determination after adjusting for lower the majority of index-linked debt was levels of meter optants and inflation. inflated using inflation at July 2010 of 4.8%. South Staffs Water’s dividend Overall, free cash flow increased to policy is to pay dividends to 77% of £24.3m from £19.9m with the increase net debt/RAV although over the AMP5 of £4.4m exceeding expectations and period this ratio is expected to be at or representing another strong performance. below 77%. Both South Staffs Water and the Group maintain significant headroom in respect of all borrowing covenants.
17 South Staffordshire Plc Corporate Social Responsibility The Group will continue to evolve environmental strategies with both employees and external organisations.
The Group is committed to a proactive who is supported by a Health and Safety Improving employee’s health and approach of managing the environmental Manager. In addition, a Group Health wellbeing remains a priority for the and social issues that affect its varying and Safety Strategy Forum exists to Group. Continuing initiatives have been businesses and Corporate Social provide a co-ordinating and monitoring externally recognised with a National Responsibility (CSR) continues to retain role and is chaired by a Group Board Health Service “Healthy Workplace its importance in many activities and Director, thereby ensuring consistent Award” for promoting health and initiatives undertaken throughout the standards and governance across the wellbeing throughout the organisation. year. The Group’s future success will Group’s businesses. depend, in part, on taking into account With approximately 1900 employees the interests of employees, customers Sharing best practice is a key strand across the Group, the focus remains and the wider community. The Group in continual improvement and this is on ensuring an incident and injury free and its employees contributed greatly achieved through quarterly meetings environment. All incidents continue to to various environmental and local of all the Group’s Health and Safety be fully investigated in order to learn community based initiatives during the Co-ordinators. This meeting also any lessons that can be implemented to year, as outlined below. facilitates the sharing of expertise and improve health and safety standards. resources in order to continue to ensure Health and Safety the competence of employees. Across Health and Safety is fundamental to the The Group recognises the contribution the Group, all businesses have in place success of the Group’s business activities, of its employees to the continued success suitable arrangements to identify and the continued development and of the business and is committed to track individual training requirements promotion of good working practices protecting their health, safety and commensurate with activities and these with cost effective measures to ensure wellbeing by developing and improving are delivered through a range of training compliance with statutory requirements arrangements for proactively managing courses provided both internally and will continue to be promoted and health and safety. Each business within externally. implemented at all levels within the the Group manages safety at local level, Group. with responsibility being with a Director,
18 Annual Report 2011
The Group has continued extensive community and charitable activities.
19 South Staffordshire Plc
Environment provides a dedicated and confidential other Group businesses have reported The Group has a strong belief in the helpline. The range of employee benefits impressive scores in their own customer value of environmental sustainability is under constant review to ensure that satisfaction surveys. and continues to investigate and commit where feasible, employees benefit from to ways to reduce its carbon footprint. the latest initiatives. – Community Preparations for reporting under The Group has continued extensive the Carbon Reduction Commitment The Group ensures that its equal community and charitable activities, Energy Efficiency Scheme have been opportunities policies are effectively both locally and further afield. completed and the Group continues to operated, making every reasonable effort £117,000 was contributed in the year to focus efforts on reducing energy use and to ensure that all people have equal charities and sponsorship. carbon emissions in its activities. South opportunities for employment, training Staffs Water has delivered the first year and promotion and strives for continued In addition the Group sponsored various of an enhanced five-year programme employment under normal terms and youth teams linked to employees and to improve pumping efficiency and conditions where possible if an employee supported a number of local schools. improvements have been in line with becomes disabled. Group employees once again supported expectations. the national water industry charity, Our commitment to Learning and WaterAid, raising much needed funds for The Group will continue to work to Development for our employees the development of safe drinking water evolve environmental strategies and continues by combining internal and and proper sanitation in developing encourage further development in external training in all areas of the countries; the total raised exceeded this area, both with employees and business in order to update our staff £10,000. external organisations, to the benefit of skills and competencies in areas such environments within its control. as customer service and management Community based initiatives development. focused mostly around education Stakeholders through working in partnership with – Employees – Customers organisations such as Walsall Enterprise The Group has approximately 1,900 The Group has a diverse range of Business Partnership, Young Enterprise employees whose skills and enthusiasm customers, from private consumers to and the Staffordshire Partnership. are vital to the Group’s success and a commercial customers. Relationships During 2010/11, Echo implemented good work-life balance plays a key role with all customers are characterised by a new CSR Framework which has a in this. A range of benefits are on offer high quality customer service, built on focus on employee well-being, charity to attract and retain the best possible long-term relationships, which are key to and community, the environment and employees. future business success and stability. quality and innovation, with the main centrepiece of this framework being Employees are offered membership of a Significant work is being undertaken the Community Scheme, which allows Group pension scheme. Most employees in South Staffs Water to enhance the employees to undertake charitable work have access to discounted private experience and satisfaction of our in their local communities. medical insurance schemes and an customers when they contact us on Employee Assistance Programme, which billing or operational matters. Whilst
20 Annual Report 2011 The Executive Team
Adrian Page, BSc (Hons) ACA Andrew Garcia, MBA, BA (Hons) Group Finance Director Managing Director of SSI Services
Appointed as Group Finance Director in Appointed as Managing Director of April 2004. Previously Group Finance SSI Services in September 2010. Prior Director of South Staffordshire Group to his appointment, Andrew has spent Plc from 1998 to 2002. Prior to this 25 years in industry in the UK and in appointment Adrian was with ACT Europe having worked with Veolia ES, Group Plc and KPMG. SIG Plc and Pilkington Glass in a variety of operational and commercial senior management roles. Andrew also spent Liz Swarbrick, PhD, BSc (Hons) three years heading up an Energy and Managing Director of South Staffs Water Environment team as part of a major US consultancy. Appointed as Managing Director of South Staffs Water in February 2011, having previously worked with the Phil Newland, BA (Hons) business as Quality and Planning Managing Director of Echo Managed Director and Regulation and Asset Services Management Director. Liz has over 20 years experience in the water industry, Appointed Managing Director of Echo has represented South Staffs Water in in April 2006, having previously worked a number of strategic Water groups with the business as Project Director and and has previously been the Midlands as Business Development Director. Prior area President of the Institute of Water to joining Echo, Phil was a Management Officers. Consultant with Automatic Data Processing (ADP) and Terence Chapman Associates.
21 South Staffordshire Plc Directors & Advisors
Directors Adrian Page Simon Riggall Alex Black
Secretary Jason Goodwin
Registered Office Green Lane, Walsall, West Midlands, WS2 7PD Telephone: 01922 638282 Registered in England, Number 4295398.
Auditors Deloitte LLP Four Brindleyplace, Birmingham B1 2HZ.
Legal Advisors Martineau 1 Colmore Square, Birmingham, B4 6AA
Bankers HSBC Bank Plc 4th Floor, 120 Edmund Street, Birmingham, B3 2QZ
Royal Bank of Scotland Plc 280 Bishopsgate, London, EC2M 4RB
Barclays Bank Plc 5 The North Colonade, Canary Wharf, London, E14 4BB
22 Annual Report 2011 Directors’ Report
The Directors have pleasure in presenting business based in Lanarkshire. (2010: £29.4m) and profit before their Annual Report for the year ended 31 • Subaqua Solutions Limited – a taxation of £20.8m (2010: £18.6m) March 2011. specialist leak detection business based including an exceptional profit of £1.5m in Dundee. generated on the disposal of land. Principal Activities and Review of • 365 Environmental Services Limited The Group’s results are shown in the Business – a sewer and drainage maintenance consolidated profit and loss account and The Group is engaged in water supply service business based in Swindon. consolidated cash flow statement on to domestic, industrial and commercial • Inter-Credit International Limited – a pages 32 and 36. customers, complementary non-regulated debt collection and credit management activities including specialist contracting business based in London. Financial and Treasury Risk businesses. A detailed review of the Details of the Group’s policy in respect Group’s businesses in the year and their Further details of these acquisitions are of financial and treasury risk are future development is presented in the provided in note 28 to the accounts. provided in note 29 to the accounts. Executive Summary, the Operational Review and the Financial Review on Except for any matters referred to Fixed Assests pages 2 to 17. elsewhere in this Annual Report, there Capital expenditure before contributions have been no other significant events towards tangible fixed assets, including Major Corporate Transactions affecting the Company or any of its infrastructure renewals, amounted to The Group has made a number of subsidiary undertakings since the end of £34.9m (2010: £25.0m) during the year. acquisitions during the financial year as the financial year. follows: Directors Financial Results Details of the Directors who held office • Ion Water and Environmental Turnover increased to £159.5m (2010: during the year are as detailed in the Management Limited – a water hygiene £142.5m) with total operating profit table below. and environmental management before goodwill amortisation of £29.6m
Directors who held office during the year:
First Appointed Resigned Mr A Page 4 December 2003 Mr C Beale* 14 November 2007 28 March 2011 Mr S Riggall* 14 November 2007 Mr A Black* 26 March 2010 *Denotes a Non-Executive Director
23 South Staffordshire Plc
Directors to the Group’s businesses. A summary Auditors No Director had any material interest of the Group’s practices is provided on In Accordance with the Companies in any contract of significance with the pages 18 to 20. Act 2006, the Directors confirm that Group during the period under review. as far as they are aware, there is no Corporate Governance relevant audit information of which the Indemnities have been given to all of the A report on corporate governance is set Company’s auditors are unaware and Directors to the extent permitted by the out on pages 25 to 28. that the Board has taken all reasonable Companies Act 2006. Directors’ and steps to make itself aware of any relevant Officers’ liability insurance has been Donations audit information and to establish that established for all Directors and senior Charitable donations of £117,000 were the Company’s auditors are aware of management to provide cover against made during the year (2010: £115,000). that information. any actions bought against them as There were no political contributions in Officers of the South Staffordshire Plc the year (2010: £nil). A resolution proposing the group of companies. reappointment of Deloitte LLP as Payment of Creditors auditors will be put to the Annual Retirement and Re-election of Directors The Group’s policy is to pay creditors in General Meeting. In accordance with the Companies Act line with the terms of payment agreed 2006 and the Articles of Association, Mr with each of them when contracting for By Order of the Board Riggall will retire by rotation and being their products or services. Group trade eligible will offer himself for re-election. creditors at 31 March 2011 represent 59 days of purchases during the year (2010: Corporate Social Responsibility 56 Days). South Staffordshire Plc regards J R Goodwin compliance with relevant environmental Company Secretary laws and the adoption of responsible social and ethical standards as integral 27 May 2011
24 Annual Report 2011 Corporate Governance
During the year under review, South Directors’ Remuneration The Board sets standards of conduct to Staffordshire Plc continued to adopt The remuneration packages and fees promote the success of the Company, appropriate standards of governance. are designed to attract, retain and provides leadership, reviews the Group’s motivate high-calibre Directors. The internal controls, risk management The Board of Directors Remuneration Committee has overall policies and governance structure. It At the year-end the Board comprised of responsibility for determining the approves major financial and investment one Executive Director and two Non- Executive Director’s remuneration decisions over senior management Executive Directors. The names of the package and level and those of senior thresholds and evaluates the performance Directors are shown on Page 22. management. Non-Executive Directors of the individual businesses and the holding office at the year end did not Group as a whole by monitoring reports Directors may be appointed by the receive any remuneration or fee. received directly by the subsidiary Company by Ordinary Resolution or by companies and those prepared at a the Board. As set out in the Company’s The total remuneration package for Group level. The Non–Executive Articles of Association a Director the Executive Director includes basic Directors have a duty to oversee this appointed by the Board will hold office salary, benefits, an annual bonus and work and to scrutinise management until the next Annual General Meeting a Long-Term Incentive Plan that are performance. (AGM). At each AGM one third of the linked to individual business targets Directors will retire by rotation and will and performance related incentives. In addition to the Audit Committee, the submit themselves for re-election at least Performance related incentives are Board is also responsible for the Group’s once every three years. The Director designed to encourage and reward systems of internal control, evaluating subject to retirement is shown on page continuing improvement in the Group’s and managing significant risks to the 24. performance over the longer term. Group.
All Directors and senior management Functions of the Board There were 10 Board meetings during are covered by Directors’ and Officers’ Company Law requires that a company the year and, in compliance with the liability insurance against any actions has an effective Board, with duties Combined Code, all Board members are taken against them as Officers of aligned to the success and interests of provided with sufficient information the South Staffordshire Plc group of the Company, setting strategic goals prior to any Board meeting to allow companies. and ensuring that Company strategy is preparation time to ensure that they fulfilled. The Company is satisfied that can properly discharge their duties. The the Board has met these requirements Board undertakes site visits during the during the last financial year. year to maintain familiarity with the Group’s operations.
25 South Staffordshire Plc
A schedule of matters specifically Remuneration Committee Audit Committee reserved for the Board’s decision has The Committee is responsible for setting The Audit Committee is responsible for been adopted based on ICSA Best the remuneration policy of the Executive reviewing and monitoring the Group’s Practice. The terms include, but are not Director, the executive team and senior internal controls and systems for limited to: management. The Executive Director mitigating the risk of financial and non- is not involved in determining his own financial loss. This includes assessing • Approval of capital and operating remuneration. the integrity of financial statements, budgets. including changes to accounting policies, • Reviewing and approving the Group’s The key terms of reference for the reviewing financial reporting procedures strategy. Committee in respect of this are to: and risk management systems. • Reviewing and approving any changes to the Group’s capital structure. • Agree remuneration that will ensure During the year the Committee met twice • Review and approval of financial that the Executive Director, the and considered the following matters: reporting. executive team and senior management • Review and approval of major are provided with appropriate • Regulatory Compliance. contracts. incentives to achieve high standards • Specific Systems and Control • Powers to delegate authority. of performance and reward them for Processes. their individual contributions to the • Contract Procurement Processes. The Directors are supported by an success of their respective business and • The Investment Programme. executive team and a team of senior the Group. • Specific Accounting Matters and managers who have responsibility for • Determine such packages and Judgements. assisting them in the development and arrangements with regard to any • Risk Control Frameworks. achievement of the Group’s strategy and relevant legal requirements and reviewing the financial and operational associated guidance and to obtain The Committee is responsible for performance of the Group and its reliable, up-to-date information about recommending to the Board the individual businesses. This team of remuneration in other companies. appointment of the external auditor and senior managers is responsible, along • Approve the design of, and determine monitoring the auditor’s independence, with the Board, for monitoring policies targets for, any performance related performance and effectiveness and and procedures and other matters that pay schemes operated within the approving the nature and scope of are not reserved for the Board. There Group. external audits and approving the are written procedures containing a • Ensure that contractual terms on auditors’ remuneration. regime of authorisation levels for key termination are fair and that failure is decision-making. The names and not rewarded. responsibilities of the executive team are set out on page 21.
26 Annual Report 2011
The key terms of reference for the Accountability and Audit – Internal Control Committee in this respect are to: – Financial Reporting and Systems The Board attaches considerable The Board of Directors recognises the importance to its system of internal • Review and appraise the work of the need to present a balanced and clearly control and for reviewing its external auditors. defined assessment of the Group’s effectiveness, including its responsibility • Monitor, review and challenge when operational and financial performance for taking reasonable steps for the necessary the integrity of the financial and position including its future safeguarding of the assets of the Group statements of the Company and prospects. This is provided by a review and for preventing and detecting fraud other Group companies, including of the Group’s performance as set out and other irregularities. Such a system is its annual report and any other in the Executive Summary, Operational designed to manage rather than eliminate formal announcement relating to its Review and Financial Review on pages the risk and can nonetheless provide only financial performance, and reviewing 2 to 17. reasonable and not absolute assurance significant financial reporting issues against misstatement or loss. The Board and judgements which they contain. Three-year business plans, annual has delegated some responsibility for • Keep under review the effectiveness budgets and investment proposals for such reviews to the Audit Committee. of the Company’s and the Group’s each business and for the Group have internal controls and risk management been formally prepared, reviewed and There is an established internal control policies. approved by the Board. These include framework that is continually reviewed three year profit and loss and cash flow and updated taking into account the The Audit Committee will normally forecasts. Financial results and cash nature of the Group’s operations. This meet to review the annual accounts, to flows, including a comparison with process includes the identification, monitor the adequacy and effectiveness budgets and forecasts, are reported to evaluation and management of the of internal controls and to review the Board monthly with variances being significant risks faced by the Group. The external and internal audit activity identified and used to initiate any action Board confirms that this process was in and strategy. The external auditor deemed appropriate. Forecasts of the place throughout the financial year to and Company Secretary are invited Group’s compliance with its borrowing which this report applies and up to the to meetings. South Staffs Water has a covenants are also prepared on a date of approval of the accounts for that separate Audit Committee made up of its regular basis, as is the Group’s level of year. The Board considers the internal Independent Non-Executive Directors. borrowing facilities and liquidity. audit arrangements in operation are appropriate to the size and complexity of The responsibilities of the external the business but will continue to review auditors in the area of financial reporting these arrangements on a regular basis. are set out on pages 30 and 31.
27 South Staffordshire Plc
– Regulatory Reporting The Board sets overall policy and audit services provided to the Group by South Staffs Water makes significant delegated the necessary authority to the external auditors is substantial. efforts to produce regulatory departments in order to fulfil that policy. documentation and information that This is communicated to employees by – Going Concern is reliable, robust and accurate and way of published policies and procedures The Directors consider that it is is supported by suitable systems and and regular management briefings. The appropriate to prepare the accounts on a procedures. The Board of South Staffs Group’s extensive financial regulations going concern basis. This is based upon Water, including independent Non- specify authorisation limits for individual a review of the Group’s budget for the Executive Directors, are involved in managers, with all material transactions year ending March 2012, the three-year the approval process for key regulatory being approved by a member of the operating plan, financial forecasts and information, and this process supports Board. In addition, formal treasury the investment programme to March the internal audit function in place and policies are in place. Where appropriate, 2014, together with forecast compliance the review of information by its Ofwat commercial and financial responsibility with borrowing covenants and Reporters (Monson Engineering) and its is clearly delegated to local business units committed borrowing facilities available external auditors (Deloitte LLP). and supported by the Board. to the Group.
South Staffs Water places great emphasis – Risk Management on regulatory reporting to ensure that Risk management is discussed at it continues to have sufficient processes Board level both in terms of the Group and internal systems of control to fully and its businesses on a regular basis. meet its obligation for the provision The Group’s individual businesses of information to Ofwat and other are required to monitor risk and its regulators. It is important to South Staffs management with any significant Water that this information is robust not changes in business risk and any just for its external credibility, but to also subsequent actions or controls to allow it to manage the performance of mitigate the risk being reported to the the business with reference to this data. Board.
– Organisational Structure – External Auditors For the year ended 31 March 2011, The Board, assisted by the Audit a defined organisation structure for Committee, is of the opinion that, the Group existed with clear lines of having reviewed the external auditors’ accountability and appropriate division performance, effectiveness and fees of duties. during the year, all are satisfactory. Usually the non-audit services undertaken by the external auditors are regulatory in nature. During the year ended 31 March 2011 the Board does not believe that the value of the non-
28 Annual Report 2011 Directors’ Responsibilities Statement
The following statement, which should In preparing these accounts, the are also responsible for safeguarding the be read in conjunction with the auditors’ Directors are required to: assets of the Company and the Group statement of their responsibilities set out and hence for taking reasonable steps on the following pages, is made with a • select suitable accounting policies and for the prevention and detection of fraud view to distinguishing for shareholders then apply them consistently; and other irregularities. the respective responsibilities of the • make judgments and accounting Directors and of the auditors in relation estimates that are reasonable and The Directors, having prepared the to the accounts. prudent; accounts, are required to provide the • state whether applicable UK auditors with such information and Company law requires the Directors Accounting Standards have been explanation as the auditors think to prepare accounts for each financial followed, subject to any material necessary for the performance of their year which give a true and fair view of departures disclosed and explained in duty. the state of affairs of the Company and the accounts and; the Group as at the end of the financial • prepare the accounts on the going The Directors have responsibility year. Under that law the Directors concern basis unless it is inappropriate for the maintenance and integrity of have elected to prepare the accounts to presume that the Company will the Company’s website. Information in accordance with United Kingdom continue in business, in which published on the internet is accessible Generally Accepted Accounting Practice case there should be supporting in many countries with different legal (United Kingdom Accounting Standards assumptions or qualifications as requirements. Legislation in the United and applicable law). necessary. Kingdom governing the preparation and dissemination of accounts may differ The Directors confirm that they have from legislation in other jurisdictions. complied with the above requirements in preparing the accounts.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the accounts comply with the Companies Act 2006. They
29 South Staffordshire Plc Independent Auditor’s Report
We have audited the financial statements Respective responsibilities of Directors In addition, we read all the financial and of South Staffordshire Plc for the year and auditor non-financial information in the annual ended 31 March 2011 which comprise of As explained more fully in the Directors’ report to identify material inconsistencies the consolidated profit and loss account, Responsibilities Statement, the Directors with the audited financial statements. the consolidated and individual company are responsible for the preparation of If we become aware of any apparent balance sheets, the consolidated cash the financial statements and for being material misstatements or inconsistencies flow statement, notes to the consolidated satisfied that they give a true and fair we consider the implications for our cash flow statement, the consolidated view. Our responsibility is to audit report. statement of total recognised gains and and express an opinion on the financial losses, the reconciliation of movements statements in accordance with applicable Opinion on financial statements in consolidated shareholders’ funds and Law and International Standards on In our opinion the financial statements: the related notes 1 to 33. The financial Auditing (UK and Ireland). Those reporting framework that has been standards require us to comply with • give a true and fair view of the state of applied in their preparation is applicable the Auditing Practices Board’s Ethical the Group’s and Company’s affairs as Law and United Kingdom Accounting Standards for Auditors. at 31 March 2011 and of the Group’s Standards (United Kingdom Generally profit for the year then ended; Accepted Accounting Practice). Scope of the audit of the financial • have been properly prepared in statements accordance with United Kingdom This report is made solely to the An audit involves obtaining evidence Generally Accepted Accounting Company’s members, as a body, in about the amounts and disclosures Practice; and accordance with Chapter 3 of Part 16 in the financial statements sufficient • have been prepared in accordance with of the Companies Act 2006. Our audit to give reasonable assurance that the the requirements of the Companies Act work has been undertaken so that we financial statements are free from 2006. might state to the Company’s members material misstatement, whether caused those matters we are required to state by fraud or error. This includes an Opinion on other matter prescribed by to them in an auditor’s report and for assessment of: whether the accounting the Companies Act 2006 no other purpose. To the fullest extent policies are appropriate to the Group’s In our opinion the information given in permitted by Law, we do not accept or and the Company’s circumstances and the Directors’ Report for the financial assume responsibility to anyone other have been consistently applied and year for which the financial statements than the Company and the Company’s adequately disclosed; the reasonableness are prepared is consistent with the members as a body, for our audit work, of significant accounting estimates financial statements. for this report, or for the opinions we made by the Directors; and the overall have formed. presentation of the financial statements.
30 Annual Report 2011
Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Company’s financial statements are not in agreement with the accounting records and returns; or • certain disclosures of Directors’ remuneration specified by Law are not made; or • we have not received all the information and explanations we require for our audit.
David Hall FCA (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Birmingham, UK 2 June 2011
31 South Staffordshire Plc
Consolidated Profit & Loss Account For the year ended 31 March 2011
2011 2010 Note £’000 £’000 Turnover 2 159,452 142,481
Less share of joint ventures’ turnover (815) (1,289)
Group turnover 158,637 141,192 Operating costs before goodwill amortisation (net) 3 (128,892) (111,861)
Group operating profit before goodwill amortisation 29,745 29,331 Share of joint ventures’ operating (loss)/profit (96) 117 Total operating profit before goodwill amortisation 29,649 29,448
Amortisation of goodwill 11 (1,567) (1,151) Total operating profit after goodwill amortisation 2 28,082 28,297
Exceptional profit on sale of tangible fixed assets 6 1,465 — Profit on ordinary activities before finance charges 29,547 28,297
Finance charges (net) 7 (8,744) (9,692)
Profit on ordinary activities before taxation 20,803 18,605 Taxation on profit on ordinary activities 8 (296) (23)
Profit on ordinary activities after taxation 20,507 18,582 Less profit after tax of minority interests 27 (1) (1)
Profit for the financial year 20,506 18,581
Earnings per share Basic and diluted 10 160.0p 144.9p
A statement of movements in reserves is given in note 25 to the accounts.
The results above are derived from continuing operations. The results of the businesses acquired during the year are not disclosed seperately as they are not considered to be material to the Group. The accompanying notes are an integral part of these accounts.
32 Annual Report 2011
Consolidated Balance Sheet As at 31 March 2011
2011 2010 Note £’000 £’000 Fixed assets Intangible assets - goodwill 11 17,117 7,982 Tangible assets 12 202,252 192,237 Investments - share of joint ventures’ net assets 15 72 185 219,441 200,404 Current assets Stocks 16 2,527 1,730 Debtors - amounts recoverable within one year 17 35,885 29,515 Debtors - amounts recoverable in more than one year 17 138,383 138,601 Cash at bank and in hand 5,722 7,197 182,517 177,043 Creditors – amounts falling due within one year Borrowings 18 (11,776) (2,594) Other creditors 19 (57,144) (38,783) (68,920) (41,377)
Net current assets 113,597 135,666 Total assets less current liabilities 333,038 336,070
Creditors – amounts falling due in more than one year Borrowings 18 (275,679) (269,405) Other creditors 19 (21,261) (22,086) Accruals and deferred income 14 (6,799) (7,001) Provisions for liabilities - deferred tax 21 (8,625) (9,059) Retirement benefit surplus/(deficit) 22 11,755 (4,003) Net assets 32,429 24,516
Capital and reserves Share capital 24 5,449 5,449 Share premium account 25 10,882 10,882 Merger reserve 25 (253) (253) Hedging reserve 25 (10,354) (12,226) Currency translation reserve 25 15 17 Capital redemption reserve 25 1 1 Profit and loss account 25 26,681 20,639 Shareholders’ funds 32,421 24,509 Minority interests 27 8 7 Total capital employed 32,429 24,516 The accompanying notes are an integral part of these accounts. The accounts of South Staffordshire Plc, registered number 4295398, were approved by the Board of Directors and authorised for issue on 27 May 2011. A P Page 33 South Staffordshire Plc
Company Balance Sheet As at 31 March 2011
2011 2010 Note £’000 £’000 Fixed assets Investments 15 45,802 25,802 Tangible assets 12 138 105 45,940 25,907 Current assets Debtors - amounts recoverable within one year 17 6,944 7,593 Debtors - amounts recoverable in more than one year 17 96,650 96,650 Cash at bank and in hand 1,702 5,752 105,296 109,995 Creditors – amounts falling due within one year Borrowings 18 (21,971) (2,693) Other creditors 19 (9,454) (7,126) (31,425) (9,819) Net current assets 73,871 100,176
Total assets less current liabilities 119,811 126,083
Creditors – amounts falling due in more than one year Borrowings 18 (89,180) (88,770) Other creditors 19 (7,396) (9,724) Net assets 23,235 27,589
Capital and reserves Share capital 24 5,449 5,449 Share premium account 25 10,882 10,882 Hedging reserve 25 (5,278) (7,001) Capital redemption reserve 25 1 1 Profit and loss account 25 12,181 18,258 Shareholders’ funds 23,235 27,589
The accompanying notes are an integral part of these accounts.
The accounts of South Staffordshire Plc, registered number 4295398, were approved by the Board of Directors and authorised for issue on 27 May 2011.
A P Page
34 Annual Report 2011
Consolidated Statement of Total Recognised Gains & Losses For the year ended 31 March 2011
2011 2010 £’000 £’000
Profit on ordinary activities after taxation 20,507 18,582 Actuarial gain/(loss) relating to retirement benefit surplus/(deficit) Actual return less expected return on scheme assets 3,071 26,069 Experience gain arising on scheme liabilities 2,078 3,472 Gain/(loss) due to changes in assumptions underlying scheme liabilities 17,098 (38,155) Loss due to movement in the pension asset limit (2,741) — Deferred tax on actuarial (gain)/loss and movement on the pension asset limit (5,183) 2,412 Movement on hedging reserve (net of deferred tax) 1,872 548 Exchange differences on translation of overseas operations (2) 3 Total recognised gains and losses relating to the year 36,700 12,931
Reconciliation of Movements in Consolidated Shareholders’ Funds For the year ended 31 March 2011
2011 2010 £’000 £’000
Profit for the financial year 20,506 18,581 Actuarial gain/(loss) and movement on asset limit relating to retirement benefit surplus/(deficit) (net of deferred tax) 14,323 (6,202) Exchange movement on translation of overseas operations (2) 3 Movement on hedging reserve (net of deferred tax) 1,872 548 Dividends paid or proposed (note 9) (28,787) (18,370) Net addition/(reduction) to shareholders’ funds 7,912 (5,440)
Opening shareholders' funds 24,509 29,949 Closing shareholders’ funds 32,421 24,509
The accompanying notes are an integral part of these accounts.
35 South Staffordshire Plc
Consolidated Cash Flow Statement For the year ended 31 March 2011
2011 2010 Note £’000 £’000 £’000 £’000
Net cash inflow from operating activities (a) 56,424 44,152
Returns on investments and servicing of finance: Net interest paid (3,277) (2,960) Interest element of finance lease and hire-purchase rental payments (178) (109) Net cash outflow from returns on investments and servicing of finance (3,455) (3,069)
Taxation: Corporation tax refunded 45 277
Capital expenditure and financial investment: Purchase of tangible fixed assets (33,907) (24,627) Proceeds from sale of tangible fixed assets 1,194 263 Capital contributions received 3,989 2,930 Net cash outflow from capital expenditure and financial investment (28,724) (21,434)
Free cash flow 24,290 19,926
Acquisitions: Cash consideration for businesses acquired (including expenses) (8,670) — Cash balances acquired (net) 1,730 — Net cash outflow from acquisitions (6,940) —
Equity dividends paid (27,351) (17,293)
Financing: Repayment of loan notes — (95) Capital element of finance lease and hire-purchase rental payments (456) (374) Net cash outflow from financing (456) (469) (Decrease)/increase in cash (net of short-term bank loans and overdrafts) (10,457) 2,164
The accompanying notes are an integral part of these accounts.
36 Annual Report 2011
Notes to the Consolidated Cash Flow Statement For the year ended 31 March 2011
(a) Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
2011 2010 £’000 £’000 £’000 £’000 Total operating profit: Group and share of joint ventures 28,082 28,297 Depreciation (non-infrastructure assets) 13,349 12,265 Depreciation (infrastructure assets) 9,555 9,339 Amortisation of goodwill 1,567 1,151 Amortisation of capital contributions (567) (568) Defined benefit pension scheme current service cost (employer) 1,858 1,168 Defined benefit pension scheme contributions (employer) (3,425) (2,490) Profit on disposal of tangible fixed assets (375) (195) 21,962 20,670 Share of operating loss/(profit) in joint ventures 96 (117) (Increase)/decrease in stocks (640) 234 Increase in debtors (2,400) (884) Increase/(decrease) in creditors 9,324 (4,048) 6,284 (4,698) Net cash inflow from operating activities 56,424 44,152
(b) Reconciliation of Movement in Net Debt 2011 2010 £’000 £’000 Decrease in cash (1,475) (8,114) (Increase)/decrease in bank loans and overdraft (8,982) 10,278 (10,457) 2,164 Finance lease repayments (cash) 456 374 Assets purchased under finance leases (net of disposals, non-cash) (893) (409) Finance lease obligations acquired from acquisitions in the year (non-cash) (455) — Bank loan issue costs amortisation (non-cash) (410) (410) Movement on index-linked debt (non-cash) (5,172) (5,006) Repayment of loan notes (cash) — 95 Increase in net debt in the year (16,931) (3,192) Net debt brought forward (264,802) (261,610) Net debt carried forward (281,733) (264,802)
37 South Staffordshire Plc
Notes to the Consolidated Cash Flow Statement
(c) Analysis of Net Debt Balance at Balance at 1 April Non-Cash 31 March 2010 Acquisitions Cash Flow Changes 2011 £’000 £’000 £'000 £'000 £’000 Cash at bank and in hand 7,197 2,437 (3,912) — 5,722 Short-term bank loans and overdrafts (2,025) (707) (8,275) — (11,007) 5,172 1,730 (12,187) — (5,285) Irredeemable debenture stock (1,633) — — — (1,633) Index-linked debt (net of issue costs) (178,391) — — (5,172) (183,563) Bank loans payable (net of issue costs) (88,770) — — (410) (89,180) Obligations under finance leases and hire-purchase contracts (1,180) (455) 456 (893) (2,072) Net debt (264,802) 1,275 (11,731) (6,475) (281,733)
Non-cash movements represent indexation, amortisation of issue costs and the discount/premium on index-linked debt and the inception of new finance leases net of disposals. The book value of net debt differs from the value used for covenant reporting purposes. Index-linked debt used for covenant reporting is the indexed principal whereas in accordance with applicable accounting standards the book value represents amortised cost. Also, bank loans for covenant purposes are reported at principal value before costs whereas the book value above includes amortised costs.
38 Annual Report 2011
Notes to the Accounts
1 Statement of Accounting Policies per cent of the nominal value of equity are complete. Income from separate shares issued as consideration. However, software maintenance contracts is The principal accounting policies are the Directors consider that in substance recognised evenly over the contract period summarised below, which have all been the consideration for these transactions to which it relates. Income generated applied consistently throughout the year comprised equity share capital with no through the performance of development and the preceding year. net cash impact and that the alternative services is included within turnover on the approach of acquisition accounting, basis that turnover is matched with the (a) Basis of Accounting with the restatement of separable assets delivery of the service. The accounts have been prepared under and liabilities to fair values, the creation the historical cost convention and in of goodwill, and the inclusion of post Contract accounting is applied to certain accordance with applicable United reorganisation results only would not give contracts the Group is a party to. Kingdom accounting standards. In a true and fair view of the Group's results Where the outcome of the contract can order to show a true and fair view, and financial position. The substance of be assessed with reasonable certainty, the Company has departed from the the transactions was not the acquisition attributable turnover and profit are requirements of the Companies Act of businesses but rather a group calculated on an appropriate and prudent 2006 in respect of merger accounting reconstruction under which the ultimate basis and included in the accounts for the for group reconstructions and in respect shareholders of the businesses transferred, period under review. Where a contract of accounting for capital contributions. and their rights relative to the others, loss is anticipated, the entire anticipated Further details are provided in (b) and (g) remained unchanged. The Directors loss is recognised immediately. below respectively. consider that it is not practicable to quantify the effect of this departure from Turnover of other non-regulated activities The Directors have considered the the Companies Act 2006 requirements. represents amounts receivable excluding assumptions for preparing the accounts VAT, from the sale of goods and services. on a going concern basis. These are set Other business combinations have been out on page 28. accounted for under the acquisition (e) Goodwill method. Goodwill arising on acquisitions, (b) Basis of Consolidation represents the excess of the fair value The Group accounts consolidate the (c) Joint Ventures of the consideration given over the accounts of the Company and its The Group’s share of turnover and profit fair value of the identifiable assets and subsidiary undertakings made up to 31 or loss of its joint ventures is included in liabilities acquired. Goodwill is amortised March each year. the consolidated profit and loss account. over its estimated useful life of 10 years. The Group’s share of their net assets or In accordance with Financial Reporting liabilities is included in the consolidated (f) Tangible Fixed Assets and Depreciation Standard Number 6, certain group balance sheet within fixed asset Tangible fixed assets comprise reorganisations which took place in investments or provisions for liabilities infrastructure assets (consisting of water previous years have been accounted for and charges respectively. mains, impounding and pumped raw using merger accounting principles, in water storage reservoirs and dams), order to meet the overriding requirement (d) Turnover operational structures (being pumping under section 393 of the Companies Act South Staffs Water turnover includes stations, treatment stations, boreholes and 2006 for financial statements to present amounts billed together with an service reservoirs), land and buildings and a true and fair view. The transactions estimation of amounts unbilled at the other assets including plant. accounted for using these principles did year-end. not meet all of the conditions for merger Infrastructure Assets accounting under Companies Act 2006, Software licence income is recognised Infrastructure assets comprise a namely that the fair value of any non- within turnover once software network of systems that, as a whole, is equity consideration must not exceed 10 implementation and customer acceptance intended to be maintained in perpetuity
39 South Staffordshire Plc
Notes to the Accounts
at a specified level of service by the requirements of the Companies Act (k) Foreign Currency continuing replacement and refurbishment 2006 is, in the opinion of the Directors, Transactions in foreign currencies are of its components. Expenditure necessary for the financial statements recorded at the rate of exchange at the on infrastructure assets relating to to show a true and fair view as it is date of the transaction or, if hedged, at increases in capacity or enhancements not possible to amortise contributions the forward contract rate. Monetary of the networks and on maintaining the to the profit and loss account over assets and liabilities denominated in operating capability of the network in the lives of the fixed assets concerned, foreign currencies at the balance sheet accordance with defined standards of as infrastructure assets do not have date are reported at the rates of exchange service are treated as additions which are determinable finite lives as they are prevailing at that date or, if appropriate, included at cost. maintained in perpetuity. at the forward contract rate.
The depreciation charge for infrastructure (h) Leased Assets The results of overseas operations are assets is the level of annual expenditure Assets financed by leasing and hire- translated at the average rates of exchange required to maintain the operating purchase arrangements which transfer during the year and their balance sheets capability of the network which is based substantially all the risks and rewards of at the rates prevailing at the balance on the Company’s independently certified ownership to the Group are included in sheet date. Exchange differences arising asset management plan. tangible fixed assets, and the net obligation on translation of the opening net assets to pay future rentals is included as and results of overseas operations and on Other Assets borrowings within creditors. Rentals are foreign currency borrowings, to the extent Other assets are stated at cost less apportioned between finance charges and that they hedge the Group’s investment accumulated depreciation and any a reduction of the outstanding liability for in such operations, are reported in the provision for impairment. Depreciation is future rentals so as to produce a constant statement of total recognised gains and provided on a straight line basis to write charge to the profit and loss account based losses. All other exchange differences are off the cost less estimated residual value upon the capital outstanding. Operating included in the profit and loss account. over the estimated useful lives of the lease rentals are charged to the profit and assets, with the exception of land which loss account on a straight line basis. (l) Pensions is not depreciated. The estimated useful The profit and loss charge in respect lives of assets are as follows: (i) Investments of defined benefit pension schemes Investments held as fixed assets are stated represents: Boreholes 100 years at cost less amounts written off and any Buildings and provision for impairment. In accordance - the increase in the present value of Service Reservoirs 50-80 years with Section 611 of the Companies Act scheme liabilities expected to arise Fixed Plant 20–30 years 2006, the cost of shares acquired from from employee service in the year. Water Meters 15 years a fellow group undertaking by way of This is charged against operating Office Equipment 5–7 years a share for share exchange are recorded profit. Mobile Plant 5 years at the higher of the nominal value of the Motor Vehicles 3–7 years shares issued as consideration and the - the difference between the carrying value of the investment in the unwinding of the discount on (g) Capital Contributions transferring company. scheme liabilities and the expected Capital contributions are treated return on scheme assets. This is as deferred income and amortised (j) Stocks charged or credited within finance over the estimated useful lives of the Stocks are valued at the lower of cost charges (net). assets concerned, except in the case and net realisable value. Cost includes of contributions towards the cost of an appropriate element of overheads. Actuarial gains and losses are charged infrastructure assets which are not Provision is made for obsolete, slow or credited directly to the consolidated amortised. This departure from the moving or defective items where statement of total recognised gains and appropriate.
40 Annual Report 2011
losses net of deferred tax. The defined (o) Financial Instruments deferred in the hedging reserve are benefit scheme liability, valued using recycled to the profit and loss account in the projected unit method and the fair Financial Assets the periods when the hedged items are value of scheme assets, is recognised All financial assets, being cash and cash recognised in the profit and loss account. in the consolidated balance sheet (net equivalents, trade debtors and loans of deferred tax) as retirement benefit receivable, are categorised as “loans Hedge accounting is discontinued when obligations. In the case of a surplus, this and receivables” which are measured at the Group de-designates the hedging is recognised in the consolidated balance amortised cost. Cash and cash equivalents relationships, the hedging instruments sheet to the extent that the Group is comprise cash at bank and in hand and expire, are terminated or are sold or they legally entitled to recover the surplus short-term deposits. no longer qualify for hedge accounting. in the future either through reduced Any cumulative gain or loss that remains contributions to the scheme, or refunds Financial Liabilities in the hedging reserve at that time from the scheme. Financial liabilities other than derivative is recognised when hedged forecast financial liabilities (see Hedge Accounting transactions are ultimately recognised in In respect of the Group defined below) are initially measured at fair value the profit and loss account. When forecast contribution schemes the amounts and subsequently measured at amortised transactions are no longer expected to charged to the profit and loss account are cost. The premium/discount and costs of occur, the cumulative gains or losses are the contributions payable in the year. issue are amortised over the life of the recognised immediately in the profit and instrument, with the amortisation being loss account. (m) Research and Development included in the effective interest rate Research and development expenditure is of the instrument which is included in (q) Related Party Transactions charged to the profit and loss account in finance charges (net) in the profit and loss As at 31 March 2011, the Company was the year in which it is incurred. account. an indirectly wholly owned subsidiary undertaking of Hydriades IV Limited. As (n) Taxation (p) Hedge Accounting such, the Company has taken advantage Corporation tax payable is provided The Group designates certain hedging of the exemption in FRS 8 “Related Party on taxable profits at the current rate. instruments, including derivatives, as Disclosures” from disclosing transactions Deferred tax is provided in respect cash flow hedges. At inception of the with other members of the group headed of capital allowances in excess of hedge relationships, the Group documents by Hydriades IV Limited, as consolidated depreciation and all other timing the relationships between the hedging financial statements for this company in differences that have originated but not instruments and the hedged items along which the accounts of the Company and reversed at the balance sheet date using with the Group’s risk management strategy its subsidiaries are included, are publicly future tax rates that have been enacted and objectives in relation to each hedge. available. The Group has no other related at the balance sheet date. The balance is At the inception of the hedges, and on party transactions requiring disclosure discounted, using the yield to maturity on an ongoing basis, the Group documents other than those disclosed in note 31. government gilts, to reflect the time value whether the hedging instruments are highly of money over the period between the effective in offsetting changes in cash flows (r) Dividends balance sheet date and the date on which of hedged items. Dividends are accrued if they have been the timing differences are expected to paid or if they have been approved by the reverse. A deferred tax asset is recognised The effective proportion of changes in shareholders before the year end. only when, on the basis of all available fair value of hedging instruments that are evidence, it is regarded as more likely designated and qualify as cash flow hedges than not that there will be suitable are deferred in equity in a hedging reserve. taxable profits from which the reversal in The gain or loss relating to the ineffective the future can be deducted. proportion is recognised immediately in the profit and loss account. The amounts
41 South Staffordshire Plc
Notes to the Accounts
2 Segmental Information
Turnover 2011 2010 £’000 £’000 South Staffs Water 87,843 86,088 Non-regulated companies 92,740 72,405 Inter-divisional (21,131) (16,012) Non-regulated companies (external) 71,609 56,393 159,452 142,481
Inter-divisional turnover relates principally to services charged to South Staffs Water by non-regulated companies.
Operating Profit 2011 2010 £’000 £’000 South Staffs Water 21,658 23,097 Non-regulated companies 6,424 5,200 28,082 28,297
Net Operating Assets 2011 2010 £’000 £’000 South Staffs Water 177,141 171,640 Non-regulated companies 10,223 11,164 Net operating assets 187,364 182,804
Net debt (281,733) (264,802) Goodwill (non-regulated) 17,117 7,982 Loans receivable in more than one year 134,000 134,000 Other non-operating net liabilities (20,011) (18,227) Corporation tax (4,925) (3,102) Retirement benefit surplus/(deficit) 11,755 (4,003) Proposed dividends (2,513) (1,077) Provisions for liabilities - deferred tax (8,625) (9,059) Net assets 32,429 24,516
All turnover, operating profit and net operating assets arise in the United Kingdom and India. The Directors do not consider the turnover, operating profit and net operating assets arising in India to be material to the Group and as such these have not been separately disclosed.
42 Annual Report 2011
3 Operating Costs Before Goodwill Amortisation (Net) 2011 2010 £’000 £’000 Other operating income (note 6) (1,148) (907) Raw materials and consumables 16,726 12,068 Staff costs (note 4) 56,539 48,967 Depreciation (non-infrastructure assets) 13,349 12,265 Depreciation (infrastructure assets) 9,555 9,339 Amortisation of capital contributions (567) (568) Operating lease rentals: plant and machinery 302 24 other 2,276 1,752 Other operating costs 31,860 28,921 128,892 111,861
Auditors' remuneration is analysed as follows: 2011 2010 £'000 £'000 Fees payable to the Company's auditors for the audit of the Company's annual accounts 15 15 The audit of other Group undertakings pursuant to legislation 107 87 Total audit fees 122 102 Other services pursuant to legislation 18 18 Tax services 32 51 Total non-audit fees 50 69
43 South Staffordshire Plc
Notes to the Accounts
4 Staff Costs Group 2011 2010 £’000 £’000 Wages, salaries and bonuses 49,662 43,623 Social security costs 4,207 3,604 Pension costs 2,670 1,740 56,539 48,967
Group 2011 2010 Number Number Average number of employees South Staffs Water 399 450 Non-regulated companies 1,458 1,223 1,857 1,673
5 Directors’ Remuneration
The remuneration of the Directors of the Company, for the year ended 31 March 2011 is set out below. ` 2011 2010 £’000 £’000 Emoluments 407 1,239
There was 1 Director holding office at 31 March 2011 accruing benefits under a defined benefit pension scheme (2010: 1 Director) and no Directors were accruing benefits under a money purchase pension scheme (2010: 1 Director). There were no contributions paid by the Group to money purchase pension schemes in respect of Directors during the year (2010: £20,000). No Directors received or exercised share options or had share interests under a share-related long-term incentive plan that vested during either year.
The highest paid Director received emoluments of £407,000 (2010: £394,000). He is a member of a defined benefit pension scheme which provided for an accrued pension of £41,000 (2010: £37,000) and an accrued lump sum of £124,000 at 31 March 2011 (2010: £110,000). There were no Group contributions to the money purchase pension scheme in respect of the highest paid Director (2010: £Nil).
None of the Directors had a material interest in any contract to which the Group was party during the year or the preceding year.
44 Annual Report 2011
6 Other Operating Income
2011 2010 £'000 £’000 Profit on disposal of tangible fixed assets (non-exceptional) 375 195 Rental income 773 712 1,148 907
During the year ended 31 March 2011, South Staffs Water disposed of land generating a profit of £1,465,000. Due to the high value and exceptional nature of this profit it has been reported as an exceptional item after Group operating profit. This gain has not impacted the tax charge of the Group for the year.
7 Finance Charges (net)
2011 2010 £’000 £’000 Interest payable and similar charges Index-linked debt (cash) 6,204 5,351 Index-linked debt (non-cash) 5,172 5,006 Bank loan and other interest payable 6,103 6,912 Finance leases and hire-purchase contracts 178 110 Irredeemable debenture stock 67 67 Share of joint ventures’ interest payable 15 9 17,739 17,455
Interest receivable Bank interest receivable (33) (305) Loans to parent undertakings (8,792) (8,792) 8,914 8,358
Other finance (income)/charges (net) Defined benefit pension scheme interest cost 8,726 8,293 Expected return on defined benefit pension scheme assets (9,098) (7,171) Amounts recycled from hedging reserve 202 212 8,744 9,692
Finance charges (net) includes £8,998,000 in the South Staffs Water business (2010: £8,658,000).
45 South Staffordshire Plc
Notes to the Accounts
8 Taxation on Profit on Ordinary Activities
The tax charge for the year comprises: 2011 2010 £’000 £’000 Current tax Current year 943 607 Adjustment in respect of prior years 346 (14) Share of joint ventures — 74 Total current tax charge 1,289 667
Deferred tax Pension cost timing differences 504 56 Origination and reversal of other timing differences (431) (165) Impact of changes in future tax rates (before discount) (1,264) — Decrease/(increase) in discount 565 (266) Adjustment in respect of prior years (367) (269) Total deferred tax credit (993) (644) Total tax charge 296 23
The overall rate of tax for the Group, including deferred tax, based on the profit before tax was 1.4% (2010: 0.1%). The principal differences between the current corporation tax rate for the Group of 6.2% (2010: 3.6%), based on profit before tax and the standard rate of corporation tax of 28% (2010: 28.0%) are as follows:
2011 2010 % % Standard rate of corporation tax 28.0 28.0 Expenses not deductible for tax purposes (net) 0.3 0.2 Pension cost timing differences (2.6) (0.3) Utilisation of losses brought forward - permanent (0.1) (0.2) Capital allowances in excess of depreciation (net) (3.9) (2.5) Group relief received and not paid for (21.0) (25.5) Adjustments in respect of prior years 1.7 (0.1) Other timing differences 3.8 4.0 Current corporation tax rate for the year 6.2 3.6
46 Annual Report 2011
9 Dividends Paid or Proposed 2011 2010 £’000 £’000 Equity interests Ordinary dividends of 224.6p (2010: 143.3p) per share 28,787 18,370
10 Earnings per Share
The calculation of earnings per share is based on profit for the financial year divided by the weighted average number of shares in issue during the year. The calculations of earnings per share are based on the following profits and number of shares:
2011 2010 £’000 £'000 Profit for the financial year and profit for earnings per share 20,506 18,581
2011 2010 Number of Number of Shares Shares Weighted average number of shares for basic and diluted earnings per share 12,819,856 12,819,856
11 Goodwill
Group £’000 Cost At 1 April 2010 11,509 Aquisitions in the year (note 28) 10,702 At 31 March 2011 22,211
Amortisation At 1 April 2010 3,527 Charge for the year 1,567 At 31 March 2011 5,094
Net Book Value At 31 March 2011 17,117 At 31 March 2010 7,982
Details of acquisitions made during the year and the resulting goodwill acquired are provided in note 28.
47 South Staffordshire Plc
Notes to the Accounts
12 Tangible Fixed Assets
Group Infra- Specialised Land and structure Fixed Plant & Operational Buildings Assets Equipment Assets Total £’000 £’000 £’000 £’000 £’000 Cost At 1 April 2010 21,302 162,115 113,270 109,270 405,957 Additions — 13,431 15,935 5,552 34,918 Capital contributions received — (3,624) — — (3,624) Disposals — (1,169) (1,810) — (2,979) Acquisitions — — 4,470 — 4,470 At 31 March 2011 21,302 170,753 131,865 114,822 438,742
Depreciation At 1 April 2010 4,681 107,699 59,086 42,254 213,720 Charge for the year 347 9,555 8,839 4,163 22,904 Disposals — (1,169) (1,790) — (2,959) Acquisitions — — 2,825 — 2,825 At 31 March 2011 5,028 116,085 68,960 46,417 236,490
Net Book Value At 31 March 2011 Owned 16,274 50,441 60,865 66,653 194,233 Leased — 4,227 2,040 1,752 8,019 16,274 54,668 62,905 68,405 202,252
At 31 March 2010 Owned 16,621 50,189 52,832 65,055 184,697 Leased — 4,227 1,352 1,961 7,540 16,621 54,416 54,184 67,016 192,237
Infrastructure renewals expenditure and the charge to the profit and loss account have been included within infrastructure assets cost and accumulated depreciation respectively. The net book value of infrastructure assets is stated net of capital contributions. The balance of capital contributions at 31 March 2011 and movements in the year are set out in note 14.
Tangible fixed assets financed by leasing and hire-purchase contracts amounted to £14,669,000 (2010: £13,752,000) less accumulated depreciation of £6,650,000 (2010: £6,212,000). Depreciation charged to the profit and loss account for the year in respect of leased assets amounted to £667,000 (2010: £569,000). Tangible fixed assets include freehold land of £2,220,000 (2010: £2,220,000) which is not subject to depreciation. Tangible fixed assets in the course of construction or commissioning had a cost of £12,379,000 at 31 March 2011 (2010: £7,758,000).
48 Annual Report 2011
Company Land & Plant & Total Buildings Equipment £’000 £’000 £'000 Cost At 1 April 2010 80 28 108 Additions — 43 43 At 31 March 2011 80 71 151
Depreciation At 1 April 2010 — 3 3 Charge for the year — 10 10 At 31 March 2011 — 13 13
Net Book Value At 31 March 2011 80 58 138
Net Book Value At 31 March 2010 80 25 105
Freehold land of £80,000 (2010:£80,000) held at 31 March 2011 was not subject to depreciation.
13 Capital Commitments
Group capital commitments outstanding at 31 March 2011 were £454,000 (2010: £798,000). The Company had no capital commitments at either year-end.
49 South Staffordshire Plc
Notes to the Accounts
14 Capital Contributions
Group Infrastructure Other Assets Assets £’000 £’000 Balance at 1 April 2010 82,197 7,001 Capital contributions received 3,624 365 Disposals (589) — Amortised in the year — (567) Balance at 31 March 2011 85,232 6,799
Capital contributions in respect of other assets are included in the consolidated balance sheet in accruals and deferred income. The Company had no capital contributions at either year-end. Capital contributions in respect of infrastructure assets are netted against tangible fixed assets in the consolidated balance sheet (note 12).
15 Fixed Asset Investments Group Company
Share of Shares in Joint Ventures’ Subsidiary Net Assets Undertakings £’000 £’000 At 1 April 2010 185 25,802 Loss after tax for the year (111) — Investment during the year — 20,000 Foreign exchange movements (2) — At 31 March 2011 72 45,802
The Group’s share of gross assets and gross liabilities in its joint ventures were £2,110,000 (2010:£1,474,000) and £2,038,000 (2010:£1,289,000) respectively. Shares in subsidiary undertakings are stated at their cost which is equal to net book value.
The investment during the year by the Company of £19,999,999 represents the issue of £4,999,999 of new ordinary share capital by Echo Managed Services Limited and £15,000,000 of new ordinary share capital by South Staffordshire Infrastructure Services Limited to the Company all at nominal value for cash consideration.
50 Annual Report 2011
As at 31 March 2011 the Company’s principal subsidiary undertakings, all of which are incorporated in the United Kingdom with the exception of Onsite India Private Limited, which is incorporated in India, and all of which have only ordinary shares in issue, were as follows:
Company Name Direct Indirect Nature of Principal Business South Staffordshire Water PLC 100% Regulated water supply Aqua Direct Limited 100% Supply of spring and mineral water Office Watercoolers Limited 90% Rental of water cooling units and sale of spring water Echo Managed Services Limited 100% Customer management Echo Northern Ireland Limited 100% Customer management Inter-Credit International Limited 100% Customer credit management South Staffordshire Infrastructure Services Limited 100% Holding company for those companies listed below Onsite Central Limited 100% Sewer inspection, relining, drainage, surveying and flow monitoring 365 Environmental Services Limited 100% Sewer and drainage maintenance services Perco Engineering Services Limited 100% Trenchless installation and refurbishment of pipeline networks Onsite India Private Limited 1% 99% Sewer inspection, relining, drainage, surveying and flow monitoring Integrated Water Services Limited 100% Clean water asset repair, maintenance and refurbishment services and water hygiene services Hydrosave UK Limited 100% Water main leak detection services and clean water network management services Hydrosave Pipeline Technologies Limited 100% Non-destructive testing of pipelines Subaqua Solutions Limited 100% Specialist leak detection services
51 South Staffordshire Plc
Notes to the Accounts
16 Stocks
Group 2011 2010 £’000 £’000 Stores and raw materials 2,527 1,730
The Company had no stocks at either year-end.
17 Debtors Group Company 2011 2010 2011 2010 £’000 £’000 £’000 £’000 Amounts recoverable within one year Trade debtors 24,696 20,089 52 64 Other debtors 2,601 1,623 2,156 2,795 Amounts owed by Group undertakings — — 4,312 4,579 Amounts owed by parent undertakings 364 364 — — Prepayments and accrued income 8,224 7,439 424 155 35,885 29,515 6,944 7,593 Amounts recoverable in more than one year Loans receivable from parent undertakings 134,000 134,000 94,000 94,000 Amounts owed by Group undertakings — — 2,650 2,650 Other amounts owed by parent undertakings 4,383 4,495 — — Other debtors — 106 — — 138,383 138,601 96,650 96,650 174,268 168,116 103,594 104,243
Other debtors in the Company include a deferred tax asset of £2,156,000 (2010: £2,793,000). The movement in the deferred tax asset is analysed below: £’000 At 1 April 2010 2,793 Charge to profit and loss account (35) Charge to statement of total recognised gains and losses (602) At 31 March 2011 2,156
Deferred tax assets for the Group are set-off against deferred tax liabilities (note 23).
52 Annual Report 2011
18 Borrowings Group Company 2011 2010 2011 2010 £’000 £’000 £’000 £’000 Amounts falling due within one year Bank loans and overdrafts 11,007 2,025 21,971 2,693 Obligations under finance leases and hire purchase contracts 769 569 — — 11,776 2,594 21,971 2,693
Amounts falling due in more than one year Bank loans 89,180 88,770 89,180 88,770 Index-linked debt 183,563 178,391 — — Irredeemable debenture stock (note 20) 1,633 1,633 — — Obligations under finance leases and hire-purchase contracts: Payable between one and two years 695 414 — — Payable between two and five years 608 197 — — 275,679 269,405 89,180 88,770
The book value of the index-linked debt of £183,563,000 (2010: £178,391,000) is stated at amortised cost. The indexed principal of £167,473,000 (2010: £159,733,000) is used for covenant purposes. Similarly, bank loans are stated net of unamortised costs whereas the principal value is used for covenant purposes.
19 Other Creditors Group Company 2011 2010 2011 2010 £’000 £’000 £’000 £’000 Amounts falling due within one year Trade creditors 24,107 16,925 3,981 3,261 Payments received in advance 11,398 9,196 — — Other creditors 13,106 7,455 1,755 1,896 Proposed dividends 2,513 1,077 2,516 1,077 Corporation tax payable 4,925 3,102 1,091 784 Other taxation and social security 1,095 1,028 111 108 57,144 38,783 9,454 7,126 Amounts falling due in more than one year Derivative financial liabilities 7,396 9,724 7,396 9,724 Other creditors 13,865 12,362 — — 21,261 22,086 7,396 9,724
Derivative financial liabilities represent the market value of floating to fixed rate interest rate swaps designated as cash flow hedges.
53 South Staffordshire Plc
Notes to the Accounts
20 Irredeemable Debenture Stock
Group 2011 2010 £’000 £’000 3½% 476 476 4% 627 627 5% 500 500 1,603 1,603 Net premium on irredeemable debenture stock 30 30 1,633 1,633
The Company had no irredeemable debenture stock at either year-end.
21 Provisions for Liabilities
Group Deferred Tax £’000 At 1 April 2010 9,059 Credit to profit and loss account (before pension cost timing differences) (1,497) Amounts acquired from acquisitions in the year 405 Charge to statement of total recognised gains and losses (before pension cost timing differences) 658 At 31 March 2011 8,625
An analysis of deferred tax is set out in note 23. The Company had no provisions for liabilities at either year-end.
54 Annual Report 2011
22 Retirement Benefit Surplus/(Deficit)
Surplus/(deficit) of defined benefit pension scheme (net of deferred tax) £'000 Deficit at 1 April 2010 (4,003) Current service cost (employer) (1,858) Current service cost (employee) (787) Contributions (employer) 3,425 Contributions (employee) 787 Finance income 372 Actuarial gain 22,247 Loss due to movement on asset limit (2,741) Movement on deferred tax (5,687) Surplus at 31 March 2011 11,755
Further disclosures relating to the above deficit are provided in note 30.
23 Deferred Tax Group Company 2011 2010 2011 2010 £’000 £’000 £’000 £’000 Deferred tax liabilities/(assets) are provided as follows: Accelerated capital allowances 17,627 18,439 5 (3) Timing differences in respect of finance charges 3,262 4,277 — — Timing differences in respect of hedging reserves (4,097) (4,755) (1,923) (2,723) Other timing differences (110) (280) (238) (67) Undiscounted provision for deferred tax 16,682 17,681 (2,156) (2,793) Discount (8,057) (8,622) — — Discounted provision for deferred tax 8,625 9,059 (2,156) (2,793)
Reductions to the future corporation tax rate of 26% were enacted during the year ended 31 March 2011 and as such deferred tax has been provided at this rate. The government has also indicated that it intends to enact further reductions in the corporation tax rate of 1% per annum, reducing the rate to 23% by 1 April 2014. These further reductions had not been substantially enacted at the balance sheet date and therefore have not been reflected in the financial statements.
The decrease in the discount of £565,000 represents the charge to profit and loss for the year and includes the impact of the change in future tax rates to 26% as explained above. There is an unprovided deferred tax liability of £1,668,000 (2010: £1,340,000) on capital gains rolled over into other assets of the Group. This will crystallise if the Group sells the assets into which the gain has been rolled into. Deferred tax relating to the retirement benefit surplus (2010: deficit) is excluded from the above and included in the surplus (2010: deficit) stated in the consolidated balance sheet (note 22).
The deferred tax asset of the Company at 31 March 2011 of £2,156,000 (2010: £2,793,000) is presented within other debtors (note 17).
55 South Staffordshire Plc
Notes to the Accounts
24 Share Capital
Group and Company 2011 2010 £’000 £’000 Authorised 47,058,824 ordinary shares of 42.5p each 20,000 20,000 Issued and fully paid 12,819,856 ordinary shares of 42.5p each 5,449 5,449
25 Reserves
Group Share Capital Currency Premium Redemption Merger Profit & Hedging Translation Account Reserve Reserve Loss Account Reserve Reserve £’000 £’000 £’000 £’000 £’000 £’000 At 1 April 2010 10,882 1 (253) 20,639 (12,226) 17 Profit for the financial year — — — 20,506 — — Dividends paid or proposed (note 9) — — — (28,787) — — Other recognised gains (net of deferred tax) — — — 14,323 — — Exchange movements on translation of overseas operations — — — — — (2) Change in value of hedging instruments - cash flow hedges (net of deferred tax) — — — — 1,723 — Amounts recycled to profit and loss (net of deferred tax) — — — — 149 — At 31 March 2011 10,882 1 (253) 26,681 (10,354) 15
Included within the profit and loss account balance is the surplus (net of deferred tax) of the defined benefit pension scheme of £11,755,000 (2010: £4,003,000 - net deficit).
Company Share Capital Premium Redemption Profit & Hedging Account Reserve Loss Account Reserve £’000 £’000 £’000 £’000 At 1 April 2010 10,882 1 18,258 (7,001) Profit for the financial year — — 22,710 — Dividends paid or proposed (note 9) — — (28,787) — Change in value of hedging instruments - cash flow hedges (net of deferred tax) — — — 1,723 At 31 March 2011 10,882 1 12,181 (5,278)
As provided by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. The Company’s profit after tax for the financial year was £22,710,000 (2010: £19,075,000). 56 Annual Report 2011
26 Operating Lease Commitments
At 31 March 2011 the Group and the Company had the following annual commitments under non-cancellable operating leases:
Group 2011 2010 2011 2010 Buildings Buildings Other Other £’000 £’000 £’000 £’000 Operating leases which expire: within one year 87 10 229 241 between two and five years 49 118 1,926 1,329 after five years 279 279 15 14 415 407 2,170 1,584
Company 2011 2010 Motor Motor Vehicles Vehicles £’000 £’000 Operating leases which expire: within one year 10 5 between two and five years 21 20 31 25
27 Minority Interests
£'000 At 1 April 2010 7 Profit on ordinary activities after taxation 1 At 31 March 2011 8
57 South Staffordshire Plc
Notes to the Accounts
28 Acquisitions
On 22 April 2010, Integrated Water Services Limited acquired the entire issued ordinary share capital of Ion Water & Environmental Management Limited, a water hygiene and environmental management company based in Lanarkshire. On 1st October 2010, the trade, assets and liabilities of this company were transferred to Integrated Water Services Limited at fair value.
On 28 June 2010, Hydrosave UK Limited acquired the entire issued ordinary share capital of Subaqua Solutions Limited a specialist leak detection company based near Dundee.
On 6 August 2010, Onsite Central Limited acquired the entire issued ordinary share capital of 365 Environmental Services Limited a sewer and drainage maintenance company based near Swindon.
On 11 August 2010, Perco Engineering Services Limited acquired the trade, assets and liabilities of WJ Drilling Limited a specialist directional drilling business now based in Northampton.
On 28 March 2011, Echo Managed Services Limited acquired the entire issued ordinary share capital of Inter-Credit International Limited a specialist credit management and debt collection company based near London.
A summary of the acquisitions including the consideration, the assets and liabilities acquired (based on provisional fair values), the related goodwill and the impact of these transactions on group cash flow and net debt are set out below.
The acquisition method of accounting has been adopted in all cases.
58 Annual Report 2011
Total £’000 Consideration: Cash consideration 8,523 Deferred consideration 3,576 Contingent consideration 1,140 Acquistion expenses 147 13,386 Book value and provisional fair value of net assets acquired: Tangible fixed assets 1,645 Stocks 157 Debtors 3,026 Cash at bank and in hand (net of overdrafts) 1,730 Creditors and provisions for liabilities (3,874) Net assets 2,684 Goodwill on acquisitions 10,702
Cash consideration paid in the year (including acquisition expenses) 8,670 Net cash balances acquired (1,730) Net cash outflow 6,940
Acquired finance leases 455 Increase in net debt 7,395
There was no material difference between the net assets acquired as recorded above and their provisional fair value.
Goodwill is being amortised over an estimated useful economic life of 10 years.
59 South Staffordshire Plc
Notes to the Accounts
29 Financial Assets and Liabilities
The Group’s financial assets and liabilities include cash, loans receivable, borrowings, derivative financial liabilities, trade creditors and trade debtors. Borrowings represent bank loans and overdrafts, finance lease obligations, index-linked debt and irredeemable debenture stock. The purpose of the Group's borrowings is to finance the Group’s operations. It is, and has been throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken. The Group’s policy in respect of cash, loans receivable and borrowings is to maintain flexibility with both fixed and floating rates and long and short-term debt while not exposing the Group to significant risk of market movements (see below). Derivative financial liabilities represent floating to fixed interest rate swaps used as cash flow hedges to reduce the Group’s risk to changes in LIBOR. The Group is not subject to any material foreign exchange risk.
Interest Rate Risk Profile
Borrowings 2011 2010 £’000 £’000 Retail Price Index-linked debt 183,563 178,391 Fixed rate financial liabilities 92,885 91,583 Floating rate financial liabilities 9,779 2,025 286,227 271,999
The floating rate borrowings principally comprise sterling denominated bank loans and overdrafts that bear interest at rates based on LIBOR or the Bank of England base rate. Fixed rate financial liabilities include floating rate bank loans of £89,180,000 (2010:£88,770,000) that are swapped to fixed rate by fully effective cash flow hedges using interest rate swaps. The Group’s cash balances earn interest at floating rates linked to LIBOR. The Group's trade debtors and trade creditors are not subject to interest unless considered to be overdue.
For all financial assets and liabilities, the book values and fair values are not materially different, except for the £111,400,000 (2010: £111,400,000) Retail Price Index-linked loan which had a book value at 31 March 2011 of £145,619,000 (2010: £141,678,000), and a fair value of £170,497,000 (2010:£170,509,000) and the £35,000,000 (2010:£35,000,000) Retail Price Index-linked bond which had a book value at 31 March 2011 of £37,944,000 (2010:£36,713,000) and a fair value of £30,251,000 (2010:£33,954,000).
Fixed Rate Borrowings Weighted Weighted average average period for which interest rate rate is fixed % Years 2011 Sterling 6.4 2.5 2010 Sterling 6.3 3.5
60 Annual Report 2011
Borrowing Facilities
The Group has various borrowing facilities available to it. The undrawn committed facilities available at 31 March 2011 in respect of which all conditions precedent had been met at 31 March 2011 were as follows:
2011 2010 £’000 £’000 Expiring in one year or less — — Expiring in more than one year but not more than two years 15,000 10,000 Expiring in more than two years but not more than five years 5,000 20,000 Expiring in more than five years — — 20,000 30,000
Financial Risks
The Group’s activities result in it being subject to a limited number of financial risks, principally interest rate risk, as the Group has floating rate and retail price index-linked borrowings and credit risk as the Group has financial assets receivable from third parties. Management of financial risks focuses on reducing the likely impact of these risks to a level that is considered acceptable. The Group has formal principles for overall risk management as well as specific policies to manage individual risks.
1) Interest rate risk
Interest rate risk arises from borrowings issued at floating rates including those linked to LIBOR and the Retail Price Index (RPI) that expose the Group’s earnings and cash flows to changes in LIBOR and the long term forecast for RPI. Risks of increases in LIBOR are managed by limiting the value and proportion of Group borrowings that are linked to this variable rate and by entering into floating to fixed rate swap contracts. Risks associated with increases in RPI are effectively hedged against the revenues and the Regulatory Asset Value of the regulated water business of South Staffs Water, both of which are also linked to RPI.
2) Credit risk
As is market practice, the Group grants certain customers credit on amounts due for the services it supplies, leading to limited risk over the recovery of amounts receivable from these customers. Full details of the way this risk is managed are provided below. Credit risk also includes the risk over recovery of loans receivable. This risk is managed by ensuring that loans are only made to entities with sufficient financial resources to both service and repay the loans. The total carrying value of financial assets subject to credit risk, net of provisions, at 31 March 2011 was £166,044,000 (2010: £161,203,000).
3) Liquidity risk
Liquidity risk represents the risk of the Group having insufficient liquid resources to meet its obligations as they fall due. The Group manages this risk by regularly monitoring actual and forecast cash flows and ensuring that the payment of its obligations are matched with cash inflows and availability of adequate banking facilities. The table above details the undrawn committed borrowing facilities available to the Group to manage this risk.
61 South Staffordshire Plc
Notes to the Accounts
Security Over Assets
Obligations under finance leases and hire purchase contracts are secured on the assets to which they relate. The Group’s index-linked debt is not secured on any assets. Bank loans are secured against the shares of the Company and its subsidiaries.
Sensitivity Analysis
The following analysis, required by Financial Reporting Standard 29, is intended to illustrate the sensitivity to reasonably possible movements during the year, in variables affecting financial liabilities, being LIBOR and the long-term forecast for the UK Retail Price Index (RPI) on the pre-tax profit and loss account of the Group for the year ended 31 March 2011. There is no impact on reserves other than the impact on the profit and loss account after tax.
2011 2010 £’000 £’000 RPI + 0.25% (417) (414) RPI - 0.25% 417 414 LIBOR +1.00% (6) 4 LIBOR -1.00% 6 (4)
The impact on the pre-tax profit and loss account for 2011 detailed above has been calculated by assuming that the illustrated changes to the variables occurred on 1 April 2010 and remained different to the actual variables recorded by the stated amount during the year with all other variables remaining at the actual amounts. The comparative figures have been calculated using the same methodology assuming the change to the variables occurred on 1 April 2009.
62 Annual Report 2011
Maturity of Financial Assets and Liabilities
The maturity profile of the Group’s financial liabilities recorded at repayment value at 31 March 2011 was as follows:
2011 2010 £’000 £’000 Borrowings In one year or less, or on demand 11,776 2,594 In more than one year, but not more than two 45,695 414 In more than two years, but not more than five 45,608 90,197 In more than five years, but not more than twenty — — In more than twenty years 169,106 161,366 272,185 254,571 Other financial liabilities In one year or less, or on demand 57,144 38,783 In more than one year but not more than two 4,250 312 In more than two years but not more than five 6,387 10,767 In more than five years but not more than twenty 9,132 8,657 In more than twenty years 1,492 2,350 Total 350,590 315,440
The table above excludes future interest payments and future indexation on financial liabilities. Index-linked borrowings of £167,473,000 (2010: £159,733,000) included in the table above are stated at the principal amount indexed by RPI to the balance sheet date. The estimated redemption value of index-linked borrowings at redemption in 2045 is £399,467,000 (2010: £399,467,000) and at redemption in 2051 is £139,996,000 (2010:£139,996,000).
Group debtors recoverable in more than one year of £138,383,000 (2010: £138,601,000) principally represent loans receivable from the Company's parent undertakings of £134,000,000 (2010: £134,000,000) with £Nil (2010:£Nil) due to be repaid within a year, £15,000,000 (2010: £15,000,000) due to be repaid between five and twenty years and £119,000,000 (2010: £119,000,000) having no fixed repayment date.
Trade Debtors
Before accepting orders from customers and offering credit terms, the Group undertakes appropriate credit assessments and uses this information to determine if the order is accepted and the credit terms that will be offered. Provision is made within the trade debtor values detailed below, based on judgement by senior management, for amounts considered to be unrecoverable due either to their nature or age. Due to the different nature of the Group’s operations there is no single method that is applied to all trade debtors. This would not be considered appropriate with the methods applied being considered appropriate to each business. The total amount charged to the profit and loss account in the year ended 31 March 2011 in respect of such provisions was £3,053,000 (2010: £2,081,000). Total Group trade debtors (net of provisions) as at 31 March 2011 were £24,696,000 (2010: £20,089,000). The total amount of the provision included in the above, as at 31 March 2011 was £14,212,000 (2010: £11,546,000). The Group does not hold collateral over its trade debtors.
63 South Staffordshire Plc
Notes to the Accounts
The Directors consider that debtors that are neither past due nor impaired are of a high quality and were considered, at the balance sheet date, to be fully recoverable at their gross book value. The Directors consider that the concentration of credit risk across the Group is limited due to the Group’s customer base being significant. The largest balance outstanding from any single company at 31 March 2011 was £1,243,000 (2010: £2,112,000), representing 5% of the above Group total (2010: 11%). Individually significant debtors are principally due from customers with investment grade credit ratings including utilities, government agencies and local authorities.
An ageing analysis of trade debtors that are past due but not impaired is provided below:
South Staffs Water <1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 2011 4,629 1,506 1,007 339 41 — 7,522 2010 5,513 1,633 736 168 — — 8,050
Non-Regulated Companies <1 month 1-2 months >2 months Total £’000 £’000 £’000 £’000 2011 3,324 992 1,509 5,825 2010 2,329 449 2,895 5,673
Non-regulated company debtors that are considered to be impaired of £1,097,000 (2010: £1,049,000) were all more than 2 months past due. An ageing analysis of South Staffs Water debtors that are considered to be impaired is provided below:
<1 year 1-2 years 2-3 years 3-4 years 4-5 years >5 years Total £’000 £’000 £’000 £’000 £’000 £’000 £’000 2011 2,469 2,397 2,023 1,931 1,682 2,613 13,115 2010 1,947 1,869 1,731 1,663 1,388 1,899 10,497
The Directors consider that the carrying value of trade and other debtors including loans receivable, net of provisions, detailed in note 17 approximates to their fair value.
30 Pension Retirement Benefits
The Group operates two funded pension schemes for the benefit of its employees. The Group participates in the Water Companies Pension Scheme, by way of a separate sub-fund, which provides benefits based on final pensionable pay. The Group also operates a defined contribution money purchase pension scheme. The assets of these schemes are held separately from those of the Group, being invested by discretionary fund managers.
The Group accounts for pension schemes in accordance with Financial Reporting Standard 17, "Retirement Benefits" (FRS 17). Further details are provided in note 1. In accordance with the recommendations of the actuary, the employers current service cost charged to the Group's profit and loss account for the defined benefit scheme in the year ended 31 March 2011 was £1,858,000 (2010: £1,168,000). The employer’s contribution rate in the year ended 31 March 2011 was 23% plus a fixed contribution of £1,640,000 (2010: 27.6%). Contribution rates for the year ending 31 March 2012 remain at this level for the employer and remain at 9.5% for the employee with an increase to the fixed contribution to £1,715,000. The amount charged to the profit and loss account for the defined contribution scheme in the year was £812,000 (2010: £572,000). There were no overdue contributions at either year-end.
64 Annual Report 2011
Financial Reporting Standard 17
Additional disclosures regarding the Group’s defined benefit pension scheme are required under the provisions of FRS 17. The FRS 17 valuation at 31 March 2011 has been undertaken by a qualified actuary using assumptions that are consistent with the requirements of FRS 17. The market value of investments has been calculated using the bid price.
The major assumptions used were as follows:
31 March 31 March 31 March 2011 2010 2009 % % % Rate of increase in salaries 4.5 4.7 4.7 Rate of increase in pensions 2.8 3.7 3.2 Discount rate 5.5 5.5 6.9 Inflation RPI 3.5 3.7 3.2 Inflation CPI 2.8 — —
31 March 31 March 31 March 2011 2010 2009 No. of Years No. of Years No. of Years Life expectancy of male aged 60 at accounting date 26.5 26.4 26.3
The market value of the assets in the scheme, the present value of the liabilities in the scheme at the balance sheet date were:
Valuation 2011 2011 2010 2010 2009 2009 % £’000 % £’000 % £’000 Equities 48 79,005 55 84,407 49 60,993 Bonds/gilts 42 68,917 45 70,430 51 64,340 Diversified growth funds 10 16,895 — — — — Cash — 174 — 53 — 349 Market value of scheme assets 164,991 154,890 125,682 Present value of scheme liabilities (146,365) (160,450) (122,828) Surplus/(deficit) in the scheme 18,626 (5,560) 2,854 Amount not recognised due to asset limit (2,741) — — Surplus/(deficit) recognised in the consolidated balance sheet 15,885 (5,560) 2,854 Related deferred tax (liability)/asset (4,130) 1,557 (799) Surplus/(deficit) after deferred tax 11,755 (4,003) 2,055
65 South Staffordshire Plc
Changes in the present value of the scheme’s liabilities are as follows:
2011 2010 £’000 £’000 Opening present value of scheme liabilities 160,450 122,828 Current service cost (employer) 1,858 1,168 Current service cost (employee) 787 777 Interest cost 8,726 8,293 Actuarial (gain)/loss (19,176) 34,683 Benefits paid (6,280) (7,299) Closing present value of scheme liabilities 146,365 160,450
Changes in the market value of the scheme’s assets are as follows:
2010 2009 £’000 £’000 Opening market value of scheme assets 154,890 125,682 Expected return on scheme assets 9,098 7,171 Actuarial gain 3,071 26,069 Contributions (employer) 3,425 2,490 Contributions (employee) 787 777 Benefits paid (6,280) (7,299) Closing market value of the scheme assets 164,991 154,890
The actual return on scheme assets over the year to 31 March 2011 was a gain of £12,169,000 (2010:£33,240,000).
An analysis of the movement in the scheme surplus/deficit during the year ended 31 March 2011 is provided in note 22. The following disclosures represent the analysis of the scheme surplus/deficit and the amounts that have been charged in the consolidated statement of total recognised gains and losses over a five year history.
66 Annual Report 2011
2011 2010 2009 2008 2007 £’000 £’000 £’000 £’000 £’000 Market value of scheme assets 164,991 154,890 125,682 150,252 148,919 Present value of scheme liabilities (146,365) (160,450) (122,828) (140,256) (143,240) Surplus/(deficit) in the scheme 18,626 (5,560) 2,854 9,996 5,679
Experience adjustments on scheme liabilities - amount of gain/(loss) 2,078 3,472 1,214 165 (50) % of scheme liabilities 1% 2% 1% 0% 0% Experience adjustments on scheme assets - amount of gain/(loss) 3,071 26,069 (30,953) (6,096) 985 % of scheme assets 2% 17% (25%) (4%) 1% Gain/(loss) due to changes in assumptions underlying the 17,098 (38,155) 22,108 8,293 5,137 present value of scheme liabilities % of scheme liabilities 12% (24%) 18% 6% 4% Actuarial gain/(loss) 22,247 (8,614) (7,631) 2,362 6,072 % of scheme liabilities 15% (5%) (6%) 2% 4%
31 Related Party Transactions
During the year ended 31 March 2009, South Staffordshire Water PLC entered into a series of agreements with a parent undertaking, Hydriades I LP. The agreements were put in place to offset the impact on South Staffordshire Water PLC of certain hedging relationships entered into with a third party bank, on both cash flow and the profit and loss account. The balance due from Hydriades I LP in respect of these transactions at 31 March 2011 was £4,746,000 (2010: £4,859,000). This amount has been recognised within debtors in the Group Consolidated Balance Sheet. In accordance with applicable accounting standards, the impact of both arrangements on the profit and loss account of South Staffordshire Water PLC and the Group have been netted off with no overall impact.
32 Ultimate Controlling Party
The Company's immediate parent undertaking is Aquainvest Acquisitions Limited. The ultimate controlling party in the United Kingdom is Hydriades IV Limited. The results of the Company and the Group for the year ended 31 March 2011 were consolidated in the accounts of Hydriades IV Limited. The ultimate controlling party is Alinda Capital Partners LLC, a company registered in the United States of America.
33 Regulatory Accounts
South Staffordshire Water PLC is required to publish additional financial information relating to the “Appointed Business” as a water supply company in accordance with its Instrument of Appointment from the Secretary of State for the Environment. A copy of this information is available by application to the Company Secretary at Green Lane, Walsall, WS2 7PD.
67 South Staffordshire Plc
Five Year Summary
Group 2011 2010 2009 2008 2007 £’000 £’000 £’000 £’000 £’000 Turnover South Staffs Water 87,843 86,088 82,986 81,243 76,735 Non-regulated companies 92,740 72,405 80,342 74,027 61,370 Inter-divisional (21,131) (16,012) (17,713) (16,925) (18,257) 159,452 142,481 145,615 138,345 119,848
Operating profit South Staffs Water 21,658 23,097 22,853 22,844 19,905 Non-regulated companies 6,424 5,200 7,457 5,424 7,173 28,082 28,297 30,310 28,268 27,078
Exceptional profit on sale of tangible fixed assets 1,465 — — — — Finance charges (net) (8,744) (9,692) (9,818) (5,461) (5,171) Profit before tax 20,803 18,605 20,492 22,807 21,907
EBITDA 51,986 50,484 51,152 47,390 44,584 Profit for the financial year 20,506 18,581 19,635 19,282 16,104 Net cash inflow from operating activities 56,424 44,152 49,995 45,680 44,763 Average number of employees 1,857 1,673 1,611 1,416 1,068 Capital investment 34,918 25,036 31,502 32,748 36,651 Net assets 32,429 24,516 29,955 43,636 38,640 Net debt 281,733 264,802 261,610 231,235 148,975
68 Annual Report 2011
Contact Details
South Staffordshire Plc
South Staffordshire Plc Group Finance Director: Adrian Page Green Lane, Walsall, West Midlands, WS2 7PD Telephone: 01922 638282 www.south-staffordshire.com
South Staffs Water
South Staffordshire Water Plc Managing Director: Dr Liz Swarbrick Green Lane, Walsall, West Midlands, WS2 7PD Telephone: 01922 638282 www.south-staffs-water.co.uk
Echo
Echo Managed Services Ltd Managing Director: Phil Newland Green Lane, Walsall, West Midlands, WS2 7PD Telephone: 0845 12 12 122 www.echomanagedservices.com
69 South Staffordshire Plc
SSI Services
Managing Director: Andrew Garcia Green Lane, Walsall WS2 7PD Telephone: 01922 638282 www.ssi-services.co.uk
OnSite Central Ltd Managing Director: Alan Plante Integrated Water Services Ltd 89 Blackpole West, Blackpole, Worcester, WR3 8TJ Managing Director: Pete Aspley Telephone: 01905 340054 Wood End Lane, Fradley, Lichfield, WS13 8NF Telephone: 01543 445700 Managing Director: Simon Baylis www.integrated-water.co.uk Unit 14, W & G Estate, Farringdon Road, East Challow, Wantage, OX12 9TF Telephone: 01235 772882 www.onsite.co.uk
Wat er Network Efficiency
Hydrosave UK Ltd Managing Director: Simon Dray Swallow Court, Kettering Venture Park, Perco Engineering Services Ltd Kettering, NN15 6XX Managing Director: Gary Houghton Telephone: 01536 515110 Cornhill Close, Lodge Farm Industrial Estate, www.hydrosave.co.uk Northampton, NN5 7UB Telephone: 01604 590200 www.perco.co.uk
70 Annual Report 2011
71 South Staffordshire Plc
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South Staffordshire Plc Green Lane Walsall WS2 7PD
Tel: +44 (0)1922 638282 Fax: +44 (0)1922 723631 www.south-staffordshire.com