ANNUAL REPORT 2018/19
WATER ELECTRICITY SEWERAGE CONTENTS
Chairman’s Statement 4
CEO’s Report 6
Water 8
Electricity 12
Sewerage 16
Flood Risk 20
Gas 24
Telecoms 25
2 MANX UTILITIES Corporate social responsibility 26
Financial review 28
Statement on internal control 32
Statement of responsibilities of the Board 37
Report of the independent auditors 38
Consolidated statement of income and retained 42 earnings for the year ended 31 march 2019
Consolidated & authority statements 43 of financial position as at 31 march 2019
Consolidated statement of cash flows 44 for the year ended 31 march 2019
Notes to the financial statements 45
ANNUAL REPORT 2018/19 3 CHAIRMAN’S STATEMENT
THIS IS THE FIFTH ANNUAL REPORT & FINANCIAL STATEMENTS OF THE MANX UTILITIES AUTHORITY, FOLLOWING ITS ESTABLISHMENT ON THE 1 APRIL 2014, AND THE THIRD REPORT THAT I HAVE THE PLEASURE IN PRESENTING.
During the year Manx Utilities continued to The completion of the pricing review supports work on the pricing strategy review requested the Programme for Government objectives and by Tynwald following a debate in October Manx Utilities also continues to work closely 2017. After some detailed modelling the final with Government Departments to support plans were laid before Tynwald in October Government policies. A significant part of this 2018 and supported unanimously. This review is supporting environmental aims to ensure the has resulted in a framework for charges that Isle of Man remains a special place to live. The gives customers certainty of their bills for the investment in sewerage infrastructure over next 5 years. I am pleased that Manx Utilities’ recent decades has been a key part of this, with standard domestic tariff is below the price cap the aim of ending the continuous discharge of for electricity charges set by the Office for Gas untreated sewage into the Irish Sea. I am pleased and Electricity Markets (OFGEM) in the United that Tynwald has supported the investment in Kingdom. The agreed tariffs provide a fair level the final phase of this, the Regional Sewage of charges for customers and ensure the long Treatment Strategy Phase 2 (RSTS2), and Manx term financial sustainability of Manx Utilities. Utilities is committed to delivering sewage treatment works in Peel, Laxey and Baldrine in an efficient and effective manner.
4 MANX UTILITIES During the year Manx Utilities also commenced appreciation of the workforce at Manx Utilities a major programme to replace and upgrade its for their commitment to their customers in electrical metering infrastructure. This will lead achieving these high standards of quality. I am to the installation of digital electricity meters also supported in my role by the Manx Utilities’ across all properties, improving the provision Board and the Executive Management team. and usefulness of consumption data for I would like to thank Mr Tim Crookall, MLC as customers. These meters will allow customers to Vice-Chairman, and the other Board members; better understand their electricity consumption Mr Bill Mummery, Mr Chris Allen and Mr John and make more informed choices about their Cowan for their dedication and hard work over usage. Energy efficiency and reduction of the last twelve months. Mr Allen advised me of unnecessary consumption is a key part of many his intention to resign from the Board of Manx countries’ strategies to reduce carbon emissions Utilities in May 2019 and I am very grateful for and tackle the climate change emergency. his contributions during his term. In March 2019 I presented a report to Tynwald on Home Generation Feed-In Tariffs, Electric Dr Alex Allinson MHK Vehicles and Electric Heating for Buildings. Manx Utilities continues to support the Chairman take-up of Electric Vehicles on the Isle of Man and has been developing a scheme to encourage electric heating. Work has also been undertaken with the Department of Environment, Food and Agriculture to develop options for future sustainable generation for the Isle of Man. The reduced rainfall in the spring and summer of 2018 saw it necessary to introduce water restrictions until water stocks recovered. I am grateful for the understanding and support of the local community during these restrictions. Whilst we have taken a number of measures, including leakage monitoring, mains refurbishment and a review of our water resources, the Isle of Man is dependent on its own raw water stocks and it is important that these are used wisely. Manx Utilities continues to be committed to delivering essential utility services to the Isle of Man in a safe, reliable, efficient and sustainable manner. These services require significant and complex infrastructure to be maintained and operated, in addition to changes needed to support the expectations of the local community. I wish to record my
ANNUAL REPORT 2018/19 5 CHIEF EXECUTIVE’S REPORT
MANX UTILITIES REMAINS FULLY COMMITTED TO DELIVERING HIGH QUALITY UTILITY SERVICES TO OUR CUSTOMERS IN A SUSTAINABLE AND EFFICIENT MANNER.
Stakeholder communications during the year longer term certainty for our customers. Service have ensured our evolving strategy remains standards have remained high with average aligned to the Isle of Man’s economic, social and customer minutes lost for electricity and water environmental aspirations. In particular during supplies meeting our targets. 2018/19 priority focus was given to climate The ongoing health of Manx Utilities on behalf change and the development of plans to help of its stakeholders also relies on effective and deliver our low carbon ambitions. This included well targeted capital investment programmes. Manx Utilities reporting its plans to Tynwald, During the year we announced our intention to supporting the Government’s Energy Futures roll out a nationwide advanced smart metering programme and working with suppliers and network, which will assist in enabling a low customers to develop robust sustainable energy carbon future as well as introducing new solutions and supply chains fit for the future. efficiencies for customer benefit. Similarly, we Of course, maintaining reliable and cost- progressed the remaining phase of the regional effective services to our customers remains sewage treatment strategy which will eliminate central to our business plan. It is therefore the discharge of all raw sewage into our pleasing to report that in October 2018 Tynwald environment. Our risk based asset management approved a 5 year pricing strategy for electricity, principles were also used to enhance the life water and sewerage services, underpinned by and performance of existing plant, network and a set of transparent principles and providing supporting infrastructure.
6 MANX UTILITIES The delivery of our services continues to be Ultimately, it’s our people that build our underpinned by quality procedures and good business and deliver our plans for the benefit governance. Our water quality system was of our stakeholders i.e. achieve all of the re-accredited to ISO9001:2015 during the year above successes. We therefore prioritise our and our internal Quality Council continues. efforts into the recruitment, development Changes to accommodate the General Data and retention of an up to date skilled team, Protection Regulations and Treasury’s updated supporting their health, safety, wellbeing Financial Regulations were also introduced and building an engaging work environment. in the year. We have also continued to I would like to place on record my personal support the Environment and Infrastructure appreciation and thanks to everybody at Manx sub-committee of the Council of Ministers Utilities for their commitment and skill in to ensure ‘joined-up’ delivery of Government helping deliver many individual and collective policy initiatives. successes during the year - and look forward to many more. We have continued to review our identification and assessment of risks, making changes to the business where appropriate. A significant Philip E King area of uncertainty during the year has been the potential impact of the United Kingdom BSc(Hons) MBA CEng CDir FIET FIoD leaving the European Union (Brexit). During the Chief Executive year work was undertaken with the Cabinet Office to identify potential risks to the supply of utility services and the costs of supplying these services. Following the extension to the United Kingdom’s departure date we will continue to monitor the possible implications for Manx Utilities and take action, where appropriate, to mitigate emerging risks.
ANNUAL REPORT 2018/19 7 WATER
8 MANX UTILITIES WE DELIVERED OVER 10 BILLION LITRES OF SAFE CLEAN DRINKING WATER TO 42,800 CUSTOMERS ON THE ISLE OF MAN. THE WATER QUALITY SUPPLIED CONTINUED TO EXCEED THE STANDARDS PRESCRIBED IN THE UNITED KINGDOM AND EUROPE
ANNUAL REPORT 2018/19 9 Water Our Services > We delivered over 10 billion litres of safe clean drinking water to 42,800 customers on the Isle of Man. The water quality supplied continued to exceed the standards prescribed in the United Kingdom and Europe
Our Assets > Notable water mains replacement projects included: a new 2.2km main laid at Bayrauyr Road Ballamodha to St Marks. New mains were also laid at Nobles Park, Ballagraingey Farm St Marks and Arragon Lane Santon > Our in-house teams worked again with the Department of Infrastructure on road resurfacing/ refurbishment schemes and took the opportunity to renew a number of sections of water mains as part of these road schemes > We carried out enabling works for Douglas Promenade including various mains connections, pipe diversions for the regeneration scheme at Victoria Street, TT Café, Marine Gardens and Summerhill
10 MANX UTILITIES QUALITY EXCEEDING STANDARDS PRESCRIBED IN THE UNITED KINGDOM AND EUROPE; ISO 9001:2015 QUALITY MANAGEMENT FOR WATER PRODUCTION AND DISTRIBUTION 1,800KM MORE THAN 10 WATER MAINS BILLION LITRES SAFE CLEAN DRINKING WATER 2 TREATMENT PLANTS 42,800 CUSTOMERS 20 WATER PUMPING STATIONS 5 RAW WATER 29 SUPPLY RESERVOIRS TREATED WATER RESERVOIRS
ANNUAL REPORT 2018/19 11 ELECTRICITY
WE PROVIDED 362 MILLION UNITS OF ELECTRICITY TO OVER 42,000 HOMES, AND 6,000 BUSINESSES ON THE ISLE OF MAN
12 MANX UTILITIES ANNUAL REPORT 2018/19 13 Electricity Our Services > With availability at 83% for the year, our combined-cycle gas turbine power station > We provided 362 million units of electricity in Pulrose used natural gas fuel to produce to over 42,000 homes, and 6,000 454 million units (kWh) of electricity for businesses on the Isle of Man our Island customers and for export to > 131 million units were sold to the UK through the United Kingdom. These outputs were our interconnector cable, capitalising on supplemented by an additional 3.4 million market conditions to generate good trading units from the diesel engines at Pulrose and profits, all aimed at reducing the cost of Peel which were operated when required electricity on the Isle of Man both for secure Island electricity supply and for high value commercial export to the > 2.4 million units of green energy were United Kingdom provided via our hydro-electric plant > During the year, a review of our oldest > There was a reduction in Customer Minutes generation plant was undertaken. As as result Lost (CML) to 17.2 minutes which is the the decision was taken to decommission second best CML figures recorded. 8.2 CML the diesel generators at Ramsey with work were attributable to unplanned events such commencing during 2019/20 as faults and third-party damage > A significant component within our power > We continued to undertake a series of system network assets is the UK-IOM Power planned maintenance works on the high Interconnector; we are pleased to report and low voltage networks to improve that we achieved a planned availability of their long-term reliability, which combined 99.5% for this asset in 2018/19 with the use of mobile synchronising generators, helped reduce the impact of our maintenance activities on customer supplies
14 MANX UTILITIES QUALITY £3.4M BEST ELECTRICAL SUPPLY FROM EXPORT RELIABILITY EVER TRADING PROFITS CUSTOMER 2.4 MILLION MINUTES UNITS OF GREEN ENERGY LOST 83% 17.2 MINUTES PLANNED, 8.2 PRIME GENERATING MINUTES UNPLANNED ASSETS AVAILABILITY 362 MILLION 99.5% UNITS OF ELECTRICITY TO... UK-IOM POWER INTERCONNECTOR AVAILABILITY 42,200 HOMES AND... 540KM OVERHEAD LINES 6,000 BUSINESSES ON THE ISLAND 1,380KM UNDERGROUND CABLE OPERATED & MANAGED 131 MILLION UNITS TO THE UK
ANNUAL REPORT 2018/19 15 SEWERAGE
16 MANX UTILITIES 600KM OF PUBLIC SEWERS OPERATED AND MAINTAINED, 76 SEWAGE PUMPING STATIONS OPERATED AND MAINTAINED AND 18 SEWAGE TREATMENT WORKS, ALL WORKING TOGETHER TO THE BENEFIT OF OUR MARINE AND AQUATIC ENVIRONMENTS
ANNUAL REPORT 2018/19 17 23KM SEWER INSPECTED AND... 3.5KM CRITICAL SEWERS LINED 18 TREATMENT WORKS OPERATED 600KM OF PUBLIC SEWERS OPERATED & MAINTAINED 76 SEWAGE PUMPING STATIONS OPERATED & MAINTAINED
18 MANX UTILITIES Sewerage Our Services Our Assets > We inspected 1km and lined 3.5km of critical > 600km of public sewers were operated sewer, constructed 12 new and refurbished and maintained, together with 76 sewage 63 manholes pumping stations and 18 sewage treatment works; all working together to the benefit of > 106 blockages were cleared from within the our marine and aquatic environments public sewer network > Design work for the Regional Sewage > Trade effluent consents were issued to Treatment Strategy (RSTS) Phase 2 Island businesses that discharge waste into schemes at Peel, Laxey and Baldrine has the public sewer system progressed well with a planning application for the Peel works due in April 2019 > We successfully completed the construction of a replacement sewage treatment works at Ballagarey. The new works produces effluent to modern standards and minimises the visual impact and the risk of odours for those utilising the adjacent Heritage Trail
ANNUAL REPORT 2018/19 19 FLOOD RISK
20 MANX UTILITIES THE MAINTENANCE OF 85KM OF DESIGNATED RIVERS FOR FLOOD RISK PURPOSES. RIVER MAINTENANCE INCLUDES WORKS TO REPAIR AND STABILISE RIVER BANKS WHERE PROPERTY AND ASSETS ARE AT RISK. ON DESIGNATED WATER COURSES, FROM TIME TO TIME WE REMOVE ACCUMULATIONS OF VEGETATION AND SEDIMENT TO MAINTAIN CHANNEL FLOW CAPACITY, INCLUDING A PROGRAMME OF DREDGING IN THE NORTHERN TRENCHES AND DITCHES
ANNUAL REPORT 2018/19 21 85KM DESIGNATED RIVERS MAINTAINED 14KM FLOOD DEFENCE ASSETS INSPECTED
22 MANX UTILITIES Flood Risk Our Services National Strategy on flood risk > General supervision over all aspects of flood > We contributed to the implementation of the risk management on the Isle of Man national strategy on sea defences, flooding and coastal erosion through our membership > The maintenance of 85km of designated rivers of the Flood Advisory Group for flood risk purposes. River maintenance includes works to repair and stabilise river > We have focused resources on two high banks where property and assets are at risk. priority catchments identified by the strategy On designated water courses, from time to time we remove accumulations of vegetation Douglas and sediment to maintain channel flow » We worked closely with the Department capacity, including a programme of dredging of Infrastructure on the Pulrose Bridge in the northern trenches and ditches replacement project, using computer modelling to inform an optimum design level to reduce flood risk Our Assets » A detailed study has been carried out > We maintain a wide range of river features for flood risk mitigation for flood risk, and to counter the effects of erosion where bank side properties are at » A flow conveyance study was undertaken risk. These features include embankments, for the River Glass in the NSC area to defence walls, weirs and some bridges. determine if any ‘quick wins’ in reducing The maintenance programme is updated the risk of flooding could be achieved annually, prioritising assets highlighted Laxey through condition assessment surveys » We developed, tested and calibrated a > We inspected 14km of flood defence assets sophisticated hydraulic modelling tool to within the designated river corridors enable the most economic flood > Some of the summer 2018 works mitigation options to be assessed programme included » We discussed Natural Flood Risk management » The replacement of a section of wall possibilities with DEFA, and have mapped at the Shore Hotel on Laxey River potential areas in the headwaters of the Laxey catchment (e.g. for tree planting schemes) » River embankment repairs along the Killane River, River Neb, Foxdale stream, Sulby » We worked with the Department of River and the Auldyn River Infrastructure on the Laxey coastal defence scheme to advise on the design from the » A green engineering technique (‘willow perspective of river & surface water flooding spilling’) was introduced along the River Neb to stabilise the banks » Gravel accumulations were removed Data from the Silverburn River at one known > We have worked closely with the Island’s pinch point MET office to improve and upgrade the data » Maintenance access ramps were installed management software package used to along the Auldyn River to facilitate gather and store climatic and hydrometric data future bank repairs » Scour protection and reinforcement works were carried out at numerous key assets to reduce the risk of damage during high flow events
ANNUAL REPORT 2018/19 23 GAS
Our Services > We supplied over 10 million therms RELIABILITY THROUGH THE of Natural Gas to the local distributor GAS TRANSMISSION AND (Manx Gas) DISTRIBUTION SYSTEM
Our Assets > We achieved 100% reliability through the off-shore pipeline system and our 66KM on-shore natural gas network GAS PIPELINES MANAGED 11 PRESSURE REDUCTION SITES 10 MILLION THERMS OF WHOLESALE NATURAL GAS DELIVERED 34 MILLION THERMS NATURAL GAS TRANSPORTED FOR POWER GENERATION
24 MANX UTILITIES TELECOMS
Our Services > Point to point or point to multi-point high bandwidth wholesale solutions supporting the Isle of Man’s retail telecommunications sector ISLE OF > Sub to multi-wavelength solutions delivered to licensed telecommunications operators MAN’S and high data volume subscribers such as data centres FIRST 100G > Managed UK network operator interface COMPATIBLE NETWORK DELIVERING WHOLESALE Our Assets SOLUTIONS > Sub-sea and metropolitan transmission class architecture providing future- proofed technology allowing our customers to ‘self-design’ their networks which are then optimised 100% for their use. Our equipment supports wavelength and gigabit SERVICE LEVEL Ethernet protocols and allows us to COMPLIANCE maximise the potential of our installed indigenous fibre optic networks
ANNUAL REPORT 2018/19 25 CORPORATE SOCIAL RESPONSIBILITY
HEALTH & SAFETY PEOPLE > Over 40 Health & Safety Council and Local > We could not have fulfilled all our service Meetings were held during the course of requirements without the dedication of the year covering Headquarters, Water, over 350 staff Sewerage, Electricity, Construction Projects > We are working with stakeholders across and Generation our organisation to find ways to make terms > Bespoke health & safety training courses and conditions fairer were created specifically for our line > We are committed to harmonisation of terms managers/supervisors, outlining H&S and conditions underpinned by a relevant responsibilities/leadership requirements that and recognised job evaluation system all supervisory staff should demonstrate > We are engaging with stakeholders > Safety presentations were delivered to to understand the current and future contractors outlining the dangers associated structures and skills required to enable with our underground/overhead services government to deliver ambitious and how to avoid striking them environmental targets > Over 100 safety alerts generated by > We are delivering a targeted strategy actively UK industry were analysed and relevant investing in the wellbeing of our staff recommendations communicated to staff > We will continue to work towards achieving a diverse workforce reflecting our customer base > We support events to promote the Isle of Man as a great place to live and work > We play an active role in the sector skills group for engineering and promote STEM and utilities careers in order to recruit, develop and retain quality staff > We continue to offer a variety of work placements for school age and undergraduate students to attract new entrants to the sector > We are continuing to supporting bursaries & apprenticeships as part of our long-term succession strategy
26 MANX UTILITIES CLIMATE CHANGE > 1,548 electricity customers went paperless in 2018-19 bringing the total to 9,835 > We remain aware of the impact our activities can have on the environment. During 2018- > 300 Industrial customers, 5,929 Commercial 19 local electricity generation is estimated customers, 7,887 prepayment customers, to have created 184,000 tonnes of carbon 24,960 customers utilise Direct Debit as dioxide, an increase of 0.9% from the previous their preferred payment option year due to increased electricity exports from gas-fired generation and a reduction in the use of our diesel fuelled generators TRAINING & EDUCATION > Our Environmental Council continues to > 9 members of staff have undergone support the process towards the adoption Mental Health First Aid training to help of the ISO14001 framework within all support the team internal operations > Over 60 different elements of training were conducted across the workforce based around job-specific, mandatory, developmental and professional
COMMUNITY FOCUS > Our Charity Team continue to support staff fund raising with those benefitting from donations being required to exhibit “improving the environment”. Future initiatives will include the likes of bird and bat boxes being installed on Manx Utilities’ > During the year we have also supported the Chief Minister’s single use plastics initiative, Manx land, planting trees, etc Utilities is a partner for UNESCO biosphere > Decorative lighting at Pulrose Power Station and supports the water bottle ‘Refill’ scheme was once again popular during the year and helped provide awareness of both local and international charities and causes > We continue to maintain our child education programme in the form of careers conventions, crucial crew supported by School Nursing-Manx Gas-IOM Fire & Rescue, classroom educational support and site visits to name but a few > Followers on Facebook and Twitter continue to grow with a view to maintaining open and clear communication channels for our customers > Communication plans form a key part of engineering programmes to ensure that our > 26 electric vehicle charging sockets were customers and key stakeholders are made made available to the public fully aware of planned activities > 76 Sustainable Generation customers > 157 EV (electric vehicle) customers > 159 Heat Pump customers
CUSTOMER FOCUS > Our Home Energy Officer has continued to support our vulnerable customers by providing low cost, no cost measures to save energy and reduce bills
ANNUAL REPORT 2018/19 27 FINANCIAL REVIEW
MANX UTILITIES PREPARES ITS ANNUAL FINANCIAL STATEMENTS IN ACCORDANCE WITH ACCOUNTING STANDARDS ISSUED BY THE UNITED KINGDOM’S FINANCIAL REPORTING COUNCIL.
The annual financial statements have been financial value of such contracts to be revalued prepared for the fourth year in accordance with annually based on the market prices of these the appropriate accounting standard (FRS102). contracts at 31 March each year. Where market prices are volatile, such as is the case for The financial statements include information natural gas, large gains and losses can arise on both the current financial year (2018-19) within the financial statements when the and the previous financial year (2017-18). The required accounting treatments are applied. results for 2017-18 were significantly impacted by the decision of Tynwald in October 2017 During the year, the increasing trend in gas to reduce the amount owed by Manx Utilities prices led to Manx Utilities entering into to the Treasury by £95 million, and produced a additional forward purchase contracts for one-off gain of the same amount. As a result the natural gas through to 2020-21 to limit financial position for 2018-19 was as follows exposure to further gas price increases. Gains of £2.9 million arising in 2017-18 from > At 31 March 2019 Manx Utilities had net the revaluation of forward contracts for assets of £82.4 million (2017-18 restated: the purchase of natural gas reversed during £79.7 million). 2018-19 to be a loss of £1.7 million, due to the > The surplus for the year after net interest significant reduction in market prices prior to charges was £2.6 million (2017-18 restated: year-end. surplus of £90.0 million). Manx Utilities continues to purchase natural gas for use in future years in advance of when it will be consumed in order to minimise the risk of large annual price changes for customers. Accounting standards require the
28 MANX UTILITIES Chart: Gas Prices April 2015 to April 2019
During 2018-19, Manx Utilities has also entered unrealised loss on forward currency contracts into forward sales contracts to fix prices for of £0.4 million as Manx Utilities could not exporting electricity to the United Kingdom benefit from the strengthening of Sterling. (UK). These contracts are significantly smaller Once the above adjustments have been removed than the gas purchase contracts but generated a from the surplus for the year, the underlying small unrealised gain of £0.1 million for the year. business performance remains roughly breakeven, Manx Utilities also has significant Euro with a small year-on-year improvement. denominated liabilities. The decline in the Isle of Man electricity unit sales were flat for value of Sterling against the Euro following the year, but the overall trend remains that the United Kingdom’s decision to leave the of reduced demand for electricity due to European Union has adversely affected the the impact of increased energy efficiency of valuation of these liabilities. For 2017-18 consumer products, including more energy these liabilities increased by £2 million as efficient lighting. a direct result of Sterling’s devaluation. The strengthening of Sterling in the final quarter of the year-end resulted in no further increase to these liabilities arising in 2018-19. These liabilities are also protected through the purchase of forward currency purchase contracts, which reduce the impact of Sterling weakening on Manx Utilities’ costs, such as may be the case if the UK leaves the European Union without a deal. However, the strengthening of Sterling has resulted in an
ANNUAL REPORT 2018/19 29 Chart: Domestic Electricty Demand – 2010 to 2019
Export sales of electricity increased by £2.2 Finance costs, including interest payable, million, reversing the previous year’s reductions. increased by £0.2 million, due to the increased Such exports of electricity provide a positive Sterling cost of interest charges on the subsea contribution to the Isle of Man, offsetting some gas pipeline lease. The Bond Repayment Fund of the generation and network fixed costs that overall investment return resulted in a £4.0 would otherwise be borne by local customers. million gain for the year, following a £0.2 The impact of planned changes to the United million loss for 2017-18. Kingdom energy markets are likely to adversely The value of the Bond Repayment Fund (set affect this area of the business in the coming up to repay the £260 million of Bonds due in years. Water and sewerage income was largely 2030 and 2034) increased during the year unchanged due to prices being unchanged for from £58.6 million to £70.4 million due to 2018-19. The gas supply business contributed contributions of £8.0 million made and the £2.4 million (2017-18: £2.7 million), and investment return. The fund remains on course the telecommunications subsidiary, e-llan to meet the repayment of the Bonds when Communications Ltd, showed a small profit. they fall due: The operating surplus before interest charges was £18.1 million against £14.7 million for 2017- 18. Distribution costs during the year decreased by £1.2 million due to the revaluation of the subsea gas pipeline lease and the strengthening of Sterling and cost of sales increased in line with the increase in electricity exports to the United Kingdom. Overall other costs were consistent with the previous year.
30 MANX UTILITIES Chart: Value of the Bond Repayment Fund
During the year a number of accounting The Government Consolidated Funds debt restatements were applied to build on the work remained constant over the period but total done in the previous financial year to increase net debt (borrowings less bank balances and the consistency of accounting treatments with investments) also decreased during the year, accounting standards across the business. The by £7 million to £341 million as a result of the impact of these adjustments which are set financial performance for the year. out in Note 28 was to increase the surplus for 2017-18 by £1.7m and closing reserves for 2017- 18 to £79.9m. Long term capital expenditure for the year totalled £10 million, which included further expenditure on the Regional Sewerage Treatment Strategy, on-going sewer refurbishment and capital maintenance of electricity generation assets.
ANNUAL REPORT 2018/19 31 STATEMENT ON INTERNAL CONTROL
THE MANX UTILITIES AUTHORITY (‘MANX UTILITIES’) IS CONSTITUTED AS A STATUTORY BOARD OF TYNWALD UNDER THE TRANSFER OF FUNCTIONS (MANX UTILITIES AUTHORITY) ORDER 2014 (‘THE ORDER’).
Manx Utilities makes this statement to Officer, Executive Directors and senior the Chief Financial Officer of Isle of Man management supports the strategy and policy Government Treasury in accordance with the approved by the Board. requirements of the Isle of Man Government’s As Accountable Officer, the Chief Executive Corporate Governance Principles and Code of is responsible for day-to-day management Conduct (‘the Government Code’). in accordance with strategy and long-term objectives, and in implementing, maintaining and reviewing the effectiveness of systems of RESPONSIBILITIES OF THE BOARD internal control, risk management and corporate AND THE ACCOUNTABLE OFFICER governance which: The Manx Utilities Board consists of a > Ensures compliance with legislation and Chairman and four other Board Members. other regulations; As required by the Order, Board membership > Safeguards public money, ensuring that it is includes as far as practicable one or more properly accounted for and that it is used members with substantial relevant engineering economically, efficiently and effectively; and experience; and one or more members with substantial financial experience. The Chairman > Supports the achievement of the strategy, is responsible for leadership of the Board and policies, aims and objectives approved by in creating conditions that ensure the Board the Board. collectively performs efficiently and effectively In discharging this responsibility, the Chief in carrying out its duties. Executive works with senior management to The Board controls strategy, policy and key put in place arrangements for the governance financial and operational matters within Manx of the affairs of Manx Utilities and its subsidiary Utilities and all its subsidiary companies. In companies and the stewardship of resources in addition, it is the Board’s responsibility to accordance with the Code. ensure that the work of the Accountable
32 MANX UTILITIES RISK MANAGEMENT AND escalate risks to the Executive if necessary. CONTROL FRAMEWORK Risk registers, which are maintained by the Executive and by each senior manager, have Manx Utilities is committed to an effective risk been reviewed and updated during the year. management approach that protects business operations and stakeholders affected by its The risk management process is an important operations. The risk management process part of the internal control environment. Risk is intended to provide consistency to the management has identified a number of key assessment, monitoring and reporting of risks, risks, which could have a material effect on the and the appetite to risk is set out in the risk aims, and objectives of Manx Utilities and its acceptability model and the business plan, subsidiary companies. Attention is drawn to the which is approved by the Board. fact that not all recorded risks are within the control of Manx Utilities. The identification, evaluation and management of risk is a line management responsibility, All business area risks are aligned with Manx with Board guidance as appropriate. The Chief Utilities’ strategic risks, which are categorised Executive and Executive Directors identify, in accordance with the balanced scorecard evaluate and monitor corporate and strategic business framework principles into 20 key risk risks, and monitor risks at an operational level areas, as follows with senior managers. Each senior manager has the appropriate delegated authority and resources to manage risks and can
FINANCE CUSTOMERS 1. Income Price Risk 10. Product and Service Quality 2. Income Volume Risk 11. Brand reputation 3. Export Contributions 4. Energy Costs 5. Other Commodity Cost e.g. metals, procurement costs 6. Overhead cost 7. Treasury-Foreign Currency exchange, interest, inflation 8. Capital Investment 9. Solvency and Profitability OPERATIONS PEOPLE 12. Health and Safety 17. Capacity 13. Product and Service Quality- 18. Skills Competence and Wellbeing Reliability 19. Communications, Relations & Reward 14. Product and Service Quality- 20. Organisational Culture Efficiency 15. Environment 16. Governance
ANNUAL REPORT 2018/19 33 REVIEW OF EFFECTIVENESS AUDIT ADVISORY The review of the effectiveness of the internal Government’s Director of Audit Advisory is controls is informed by the work of management, responsible for the completion of an approved Treasury’s Audit Advisory Division, the External audit plan for Manx Utilities under an agreed Auditor, and by other external inspection bodies. service level agreement. Audit Advisory, through its annual programme of work provided assurance that an effective and MANAGEMENT ASSURANCES adequate internal control environment is in place OF EFFECTIVENESS to identify and manage business risk across Manx Utilities and its subsidiary companies. This The effectiveness of internal control and corporate includes recommendations for the improvement governance arrangements is continuously of procedures, processes and controls based on assessed. As part of this work, Manx Utilities the results of their audit work. undertakes an annual review process that involves the Executive and senior management completing Self-Review Questionnaires and Assurance Certificates on internal control, risk management EXTERNAL ASSURANCES and corporate governance arrangements. OF EFFECTIVENESS In undertaking their review, senior managers have Treasury’s Financial Controller attends both the considered each of the following operating risks Manx Utilities’ and e-llan Communications’ Board within their departments: meetings, and Government’s Director of Audit Advisory attends the Audit and Risk Committee meetings. The External Auditor, appointed by Business Continuity Human Resources Isle of Man Government, reports to the Board through the Audit and Risk Committee and their Performance Change Management audit opinion is set out in the relevant section of Management the Annual Report and Accounts. Financial Health and safety Manx Utilities’ insurers undertake annual reviews Management and of the operating regime to establish an acceptable Compliance engineering level of risk on insurance cover, and Procurement Environment the organisation engages third-party inspectors to undertake certificated statutory inspections of Information Corporate all pressurised plant and equipment, all types of Management Governance lifting equipment and to follow best practices in Value For Money examining and testing water treatment facilities. Impounding reservoirs are periodically inspected by an Independent Inspecting Engineer following UK best practice. Manx Utilities is certified Investors in People organisation, is certified to The Executive Directors provide assurance the ISO9001:2015 Quality Management Standard to the Chief Executive on the adequacy of for its water activities, is working towards the control environment for the areas of certification to the ISO14001 Environmental the business for which their managers are Management Standard and is annually assessed as responsible, and the Chief Executive has a qualified electrical installer. reviewed the results of these assessments.
IMPROVEMENTS MADE TO THE SYSTEMS OF THE PURPOSE OF THE SYSTEMS INTERNAL CONTROL DURING THE YEAR OF INTERNAL CONTROL As previously explained, systems of internal Manx Utilities’ systems of internal control, risk control across all business areas are subject to management and corporate governance, which have continuous review and improvement. Some of been in place for the year ended 31 March 2019, the most significant improvements made to the have been developed through an ongoing process management of risk over this year have been designed to identify principal risks, to evaluate the nature and extent of those risks and to manage them efficiently, effectively and economically which also includes independent reviews conducted by Treasury’s Audit Advisory Division.
34 MANX UTILITIES RISK MANAGEMENT IMPROVEMENTS MADE DURING THE YEAR
Improvement Details of Improvement
Business planning and All senior Managers undertook the business plan review process development to ensure alignment with the direction, key objectives and public service obligations in the delivery of services within a framework of Board agreed policies and identified corporate risks. Increased emphasis of the Business Development Committee is ongoing. A procurement exercise has been undertaken to commence the Air Source Heat Pump trial and a dedicated engineer appointed to oversee the operational and tender requirements for this and the smart electric vehicle charging network. Health, Safety and the Continuance of the Corporate Manx Utilities Health & Safety Environment Management System (HSMS) that covers all work activities and aims to minimise the risk of injury to staff, contractors and members of the public affected by our operations. The system broadly follows the principles outlined within the UK which advocates adopting the Plan-Do-Check-Act (PDCA) model. H&S concern reporting has improved as evidenced in monthly Board reports. Over 100 supervisors have received bespoke Health and Safety training, with the aim of improving the organisational health and safety culture. A separate Environmental Council also continues to operate and progression has been made towards the ISO14001 Environmental Management standard. Asset Management Council Continuation of the Asset Management Council to review and (AMC) secure multidisciplinary operational knowledge of resilience, asset management and business continuity risks and to identify improvement opportunities. Monthly Management Perpetuation and improvement of the monthly process review to Reporting-Finance process introduce improved housekeeping procedures. Part of this process improvement has been the implementation of an improved financial reporting tool, ‘CyberQuery’, within the Finance team. VAT return process has been redesigned to improve accuracy in reporting. Performance Management A Business Analyst was recruited to review and evaluate business processes and to identify areas for improvement ISO 9001:2015 certification A successful external surveillance audit resulted in continued certification. Trade Effluent Continuation of implementation of the trade effluent consenting regime in consultation with stakeholders. Human Resources Health and The health and wellbeing programme to date has included well Wellbeing Programme attended multi-centred workshops on mental health first aid, drug and alcohol awareness, ‘quit for you’ and Lloyds bank finance and debt management. This has resulted in increased reporting and requests for specialist referral. Risk Register Review The risk management recording system has been reviewed and updated across all business risk areas to ensure continuous improvement and that documented risks and controls remain relevant. Utilisation of the Government Skilled utilisation of the Government Procurement Portal resulting Procurement Portal in efficient processing of quotes and tenders. Government’s revised format of Financial Regulations (including Financial Practice Notes) was adopted during the year.
ANNUAL REPORT 2018/19 35 PLANNED IMPROVEMENTS TO THE SYSTEMS OF INTERNAL CONTROL The following key improvements have been identified for implementation within the next financial year:
RISK MANAGEMENT IMPROVEMENTS MADE DURING THE YEAR
Improvement Details of Improvement
ISO9001:2015 quality The expansion of the scope of the current accreditation to include all certification utility service areas, and in accordance with the latest ISO standard. ISO14001: Environmental The introduction of a corporate Environment Management System Management System following the ISO14001 model. Terms and conditions of The introduction of a fair and equitable system governing pay employment and grading enabling synergy savings to be realised and the ‘one team’ concept to be delivered, and so enable the removal of five different set of terms and conditions that exist at present. The extension and completion of the job evaluation process and negotiation of harmonised employment terms and conditions to commence. Purchasing Improved monitoring of the procurement plan and spend analysis to ensure enhanced compliance with the revised financial regulations. e-llan Communications To support the Isle of Man Government’s initiative regarding enhanced telecommunications infrastructure. Succession planning Continuation of succession planning to replace staff or restructure operational teams to ensure business continuity is maintained. Monitoring the impact of the Equality Act on assumed retirement plans. Performance Management The introduction of a new SharePoint solution to log and monitor (Finance) all invoices received prior to entry on the finance system in order to improve creditor management. Network and Client Services Consideration of a Customer Relationship Management (CRM) system which will assist in the management of customer interactions and performance management. GDPR Preparedness The continued preparation and implementation of all data management and protection requirements under the General Data Protection Regulations. Business Continuity The integration of Business Continuity Plans across Manx Utilities business areas. Cyber Security Active engagement with the Office of Cyber Security and Information Assurance and Cyber Risk Assurance Board in order to continue development of the Manx Utilities Cyber Resilience Forum.
REPORT ON INTERNAL CONTROL AND CORPORATE GOVERNANCE ENVIRONMENT
Attention is drawn to the fact that systems subsidiary companies, are considered adequate of internal control and corporate governance and operated effectively during the year ended are designed to manage, rather than eliminate, 31 March 2019. the risk of failure to achieve objectives. They can therefore only provide reasonable and not absolute assurance of effectiveness. Philip E King Accordingly, reasonable assurance is given that BSc(Hons) MBA CEng CDir FIET FIoD Manx Utilities’ internal control and corporate Chief Executive governance arrangements and those of the
36 MANX UTILITIES STATEMENT OF RESPONSIBILITIES OF THE BOARD
THE BOARD IS RESPONSIBLE FOR PREPARING THE CHAIRMAN’S STATEMENT, THE CHIEF EXECUTIVE’S REPORT AND THE FINANCIAL STATEMENTS IN ACCORDANCE WITH APPLICABLE LAWS AND REGULATIONS.
The Audit Act 2006 requires the Board to > Assess the Authority’s ability to continue prepare financial statements for each financial as a going concern, disclosing, as applicable, year which meet the requirements of the matters related to going concern; and Accounts and Audit Regulations 2018 made > Use the going concern basis of accounting under the Audit Act 2006. The regulations unless they either intend to liquidate require the Board to prepare the financial Authority or to cease operations, or have no statements in accordance with UK Accounting realistic alternative but to do so. Standards including FRS 102: The Financial Reporting Standard applicable in the UK and The Board is responsible for keeping adequate Ireland (as applicable to an Isle of Man entity). accounting records that are sufficient to show and explain the Authority’s transactions and The Board must not approve the financial disclose with reasonable accuracy at any statements unless it is satisfied that they give time the financial position of the Authority a true and fair view of the consolidated and and enable them to ensure that the financial individual state of affairs of the Authority and statements comply with the Accounts and of its consolidated surplus or deficit for that Audit Regulations 2018 made under the Audit period. In preparing the Authority’s consolidated Act 2006. The Board is responsible for such financial statements, the Board is required to: internal control as it determines is necessary to > Select suitable accounting policies and then enable the preparation of financial statements apply them consistently; that are free from material misstatement, whether due to fraud or error, and have general > Make judgements and estimates that are responsibility for taking such steps as are reasonable and prudent; reasonably open to them to safeguard the > State whether applicable UK Accounting assets of the Authority and to prevent and Standards have been followed, subject to any detect fraud and other irregularities. material departures disclosed and explained in the consolidated financial statements;
ANNUAL REPORT 2018/19 37 REPORT OF THE INDEPENDENT AUDITORS OPINION ON THE FINANCIAL STATEMENTS
We have audited the financial statements of are described below. We have fulfilled the Manx Utilities Authority ( “the Authority”) our ethical responsibilities under, and are and its subsidiaries (together “the Group”) For independent of the Group and the Authority the year ended 31 March 2019 which comprise in accordance with, UK ethical requirements the Consolidated Statement of Income and including the FRC Ethical Standard. We believe Retained Earnings, the Consolidated and that the audit evidence we have obtained is a Authority Statements of Financial Position, the sufficient and appropriate basis for our opinion. Consolidated Statement of Cash Flows and related notes, including the accounting policies in Note 3. THE IMPACT OF UNCERTAINTIES DUE TO In our opinion the financial statements: THE UK EXITING THE EUROPEAN UNION ON OUR AUDIT > Give a true and fair view of the state of the Group’s and of the Authority’s affairs as at Uncertainties related to the effects of Brexit 31 March 2019 and of the Group’s surplus are relevant to understanding our audit of the for the year then ended; financial statements. All audits assess and challenge the reasonableness of estimates > Have been properly prepared in accordance made by the board and related disclosures and with UK Accounting Standards including the appropriateness of the going concern basis FRS 102 The Financial Reporting Standard of preparation of the financial statements. All applicable in the UK and Republic of Ireland, of these depend on assessments of the future as applicable to an Isle of Man entity and economic environment and the group’s future as modified by any Directions issued by prospects and performance. Treasury under section 13 of the Audit Act 2006; and Brexit is one of the most significant economic events for the UK, and at the date of this > Have been properly prepared in accordance report its effects are subject to unprecedented with the requirements of the applicable law levels of uncertainty of outcomes, with the full and UK Accounting Standards as applicable range of possible effects unknown. We applied to an Isle of Man entity, as modified by the a standardised approach in response to that Accounts and Audit Regulations 2018 made uncertainty when assessing the group’s future under the Audit Act 2006. prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for BASIS FOR OPINION a company and this is particularly the case in relation to Brexit. We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
38 MANX UTILITIES GOING CONCERN We review the Statement of Internal Control prepared by the Board in accordance with the The Board have prepared the financial Accounts and Audit Regulations 2018 made statements on the going concern basis as under the Audit Act 2006. We report if the they do not intend to liquidate the Group and Statement of Internal Control is misleading the Authority or to cease its operations, and or inconsistent with other information we as they have concluded that the Group’s and are aware of from our audit of the Accounts. the Authority’s Financial position means that We are not required to consider, nor have we this is realistic. They have also concluded that considered, whether the Statement of Internal there are no material uncertainties that could Control covers all risks and controls. have cast significant doubt over its ability to continue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”). MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION We are required to report to you if we have concluded that the use of the going concern In accordance with section 6(2) of the basis of accounting is inappropriate or there is Audit Act 2006, we are required to include an undisclosed material uncertainty that may a statement in our audit report providing cast significant doubt over the use of that particulars where in relation to the Accounts we: basis for a period of at least a year from the Are not satisfied as to any of the date of approval of the financial statements. > matters specified in section 4(1) In our evaluation of the Boards’ conclusions, of the Audit Act 2006; we considered the inherent risks to the Group’s and to the Authority’s business model, > Consider that any matter specified in including the impact of Brexit and analysed section 4(2) of the Audit Act 2006 is how those risks might affect the Group’s and contrary to law, or; Authority’s financial resources or ability to continue operations over the going concern > Consider that the relevant body has period. We have nothing to report in these failed in any respect mentioned in respects. section 4(3) of the Audit Act 2006. However, as we cannot predict all future events With regard to section 4(3) of the Audit Act or conditions and as subsequent events may 2006, recommendations in respect of internal result in outcomes that are inconsistent with controls matters identified during the course judgements that were reasonable at the time of our audit are reported to the Group and the they were made, the absence of reference to Authority in a separate Highlights Memorandum. a material uncertainty in this auditor’s report Except as noted above, we have nothing to is not a guarantee that the Group and the report in respect of the matters we are required Authority will continue in operation. to report by exception.
OTHER INFORMATION BOARD’S RESPONSIBILITIES The Board are responsible for the other As explained more fully in their statement set information presented with the financial out on page 37, the Board is responsible for: statements. Our opinion on the financial the preparation of the financial statements statements does not cover the other and for being satisfied that they give a information and we do not express an audit true and fair view; such internal control as opinion or any form of assurance conclusion they determine is necessary to enable the thereon. preparation of financial statements that are Our responsibility is to read the other free from material misstatement, whether information and, in doing so, consider whether, due to fraud or error; assessing the Group’s based on our financial statements audit work, and Authority’s ability to continue as a going the information therein is materially misstated concern, disclosing, as applicable, matters or inconsistent with the financial statements or related to going concern; and using the going our audit knowledge. Based solely on that work concern basis of accounting unless they either we have not identified material misstatements intend to liquidate the Group or the Authority in the other information. or to cease operations, or have no realistic alternative but to do so.
ANNUAL REPORT 2018/19 39 AUDITOR’S RESPONSIBILITIES Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities.
THE PURPOSE OF OUR AUDIT WORK AND TO WHOM WE OWE OUR RESPONSIBILITIES. This report is made solely to the Authority, as a body, in accordance with Section 4 of the Audit Act 2006. Our audit work has been undertaken so that we might state to the Authority those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Authority as a body, for our audit work, for this report, or for the opinions we have formed.
KPMG Audit LLC 24 October 2019 Chartered Accountants Heritage Court, 41 Athol Street, Douglas Isle of Man. IM99 1HN.
40 MANX UTILITIES ANNUAL REPORT 2018/19 41 CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE YEAR ENDED 31 MARCH 2019
Group 2018-19 Group 2017-18 (restated) (Note 28) Note £000 £000
5 Turnover 108,708 103,855
Cost of sales (57,949) (47,827)
Gross profit 50,759 56,028
Distribution costs (24,083) (25,231)
Administrative expenses (8,382) (7,496)
Other operating losses (281) (8,574)
6 OPERATING SURPLUS 18,012 14,727
9 Interest and investment income 3,955 (141)
9 Interest payable and similar charges (22,051) (21,983)
9 Gain on forward purchases and sales 2,666 2,436
17 Debt reduction - 95,000
SURPLUS FOR THE YEAR 2,581 90,039
19 Reserves at the beginning of the year 79,858 (10,181)
Surplus for the Year 2,581 90,039
19 Reserves at the end of the year 82,440 79,858
In both the current and preceding financial years the Group had no other recognised gains or losses other than those dealt with in the Consolidated Statement of Income and Retained Earnings. The Board consider that all results derive from continuing activities. The Notes on pages 45 to 75 form an integral part of these financial statements.
42 MANX UTILITIES CONSOLIDATED & AUTHORITY STATEMENTS OF FINANCIAL POSITION AS AT 31 MARCH 2019
Group 2018-19 Group 2017-18 Authority Authority (restated 2019 2017-18 Note 28) (restated) (Note 28) Note £’000s £’000s £’000s £’000s FIXED ASSETS 11 Tangible Fixed Assets 458,086 467,926 416,443 425,241 Capital work in progress 136 136 136 136 458,222 468,062 416,579 425,377 INVESTMENT IN SUBSIDIARY 10 - - 22,969 22,466 COMPANIES 458,222 468,062 439,548 447,843 CURRENT ASSETS Stocks 6,473 6,553 6,473 6,553 12 Debtors 14,074 12,903 29,951 31,816 13 Cash and cash equivalents 31,302 38,691 30,878 37,596 14 Investments 62,400 49,800 62,400 49,800 114,249 107,947 129,702 125,764 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 18 Finance Debt (8,305) (4,353) (8,305) (4,353) 15 Creditors (9,541) (11,091) (9,056) (10,606) 17 Due to Government (7,961) (15,901) (7,961) (15,861) (25,807) (31,345) (25,322) (30,820) NET CURRENT ASSETS 88,442 76,602 104,380 94,944 TOTAL ASSETS LESS CURRENT 546,664 544,666 543,928 542,788 LIABILITIES CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 16 Deferred Income (13,022) (12,856) (13,022) (12,856) 17 Due to Government (434,858) (429,509) (434,858) (429,509) 18 Finance Debt (16,344) (22,442) (16,344) (22,442) 15 Creditors - - - - (464,224) (464,807) (464,224) (464,807) NET ASSETS 82,440 79,858 79,704 77,981 RESERVES 82,440 79,858 79,704 77,981
The Notes on pages 45 to 75 form an integral part of these financial statements. The financial statements on pages 42 to 75 were authorised for issue by the Manx Utilities Authority on 23 Octoberr 2019.
Dr A J Allinson MHK P E King Chairman Chief Executive
ANNUAL REPORT 2018/19 43 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 MARCH 2019
Group 2018-19 Group 2017-18 Note £’000s £’000s 21 NET CASH FROM OPERATING ACTIVITIES 42,039 44,293 Cash Flow from Investing Activities Acquisition of fixed assets (10,258) (10,675) Proceeds from disposal of fixed assets 61 590 Deferred income - customers’ contributions received 507 507 Net purchases of financial investments (12,600) (2,633) Interest (paid)/received (141) 5,435 Net Cash Used in Investing Activities (22,432) (6,777) Cash Flow from Financing Activities Repayment and reduction of loans (11,539) (5,076) Additional loans from Government 8,948 8,948 Repayment of lease finance (6,450) (4,377) Interest paid (17,837) (28,637) Net Cash Used in Financing Activities (26,878) (29,141) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (7,271) 8,374 Cash and cash equivalents at the beginning of the year 38,691 29,239 Exchange (loss) /gains on cash and cash equivalents (118) 1,078 Cash and cash equivalents at the end of the year 31,302 38,691 Cash and cash equivalents consist of: Cash at bank 23,263 29,869 14 Short term deposits 8,039 8,822 Cash and cash equivalents 31,302 38,691
The Notes on pages 45 to 75 form an integral part of these financial statements.
44 MANX UTILITIES NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL INFORMATION BASIS OF PREPARATION These financial statements are prepared on a The Manx Utilities Authority is a non-Revenue Funded going concern basis under the historical cost Statutory Board of the Isle of Man Government. convention as modified by the recognition of The Manx Electricity Authority (“MEA”) was certain financial assets and liabilities measured constituted under the Electricity Act 1996 (as at fair value. amended by The Gas and Electricity Act 2003) The preparation of financial statements requires as a Statutory Board of Tynwald, and the Isle the use of certain critical accounting estimates. of Man Water & Sewerage Authority (“WSA”) It also requires management to exercise its was constituted under the Transfer of Functions judgement in the process of applying the Order 2010 as a Statutory Board of Tynwald. In Group and Authority accounting policies. The accordance with the Transfer of Functions (Manx areas involving a higher degree of judgement Utilities Authority) Order 2014, with effect from or complexity, or areas where assumptions 1 April 2014 all functions of the MEA and WSA and estimates are significant to the financial were transferred to the Manx Utilities Authority statements are disclosed in note 4. (“Manx Utilities”) and its subsidiaries (together “the Group”). With effect from that date the The Authority has taken advantage of MEA and WSA were dissolved and all assets and exemptions from presenting its individual liabilities were transferred to Manx Utilities. statement of income and cashflow.
2. STATEMENT OF BASIS OF CONSOLIDATION The Group financial statements include the COMPLIANCE financial statements of the Manx Utilities These financial statements have been prepared Authority and its subsidiary companies in compliance with United Kingdom Accounting (Note 10). Standards, including Financial Reporting A subsidiary is an entity controlled by the Standard 102 (“FRS 102”, ‘The Financial Reporting Group. Control is the power to govern the Standard applicable in the UK and Republic of financial and operating policies of an entity so Ireland’) as applicable to an Isle of Man entity. as to obtain benefits from its activities. Where They have also been prepared in accordance the Group owns less than 50% of the voting with the Accounts and Audit Regulations 2018 powers of an entity but controls the entity by made under the Audit Act 2006 and any other virtue of an agreement with other investors applicable statutory provisions, to the extent which give it control of the financial and applicable to Manx Utilities. operating policies of the entity it accounts for Manx Utilities has significant liabilities, including that entity as a subsidiary. £260 million of external finance. Manx Utilities All intra-Group transactions, balances, income Authority has previously prepared a long term and expenses are eliminated on consolidation. financial model and reviews and updates this Adjustments are made to eliminate the profit or model annually to demonstrate that Manx Utilities loss arising on transactions with associates to is able to repay its external debts as they fall due. the extent of the Group’s interest in the entity.
3. ACCOUNTING POLICIES FOREIGN CURRENCY TRANSLATION The principal accounting policies applied in the The Group financial statements are presented preparation of these consolidated and separate in pound Sterling and rounded to thousands. financial statements are set out below. These Manx Utilities’ functional and presentation policies have been consistently applied to all currency is pound Sterling. the years presented.
ANNUAL REPORT 2018/19 45 Transactions in foreign currencies are recorded (ii) INTEREST INCOME using the rate of exchange ruling at the date of Interest income is recognised using the the transaction. effective interest rate method. Monetary assets and liabilities denominated in foreign currencies are translated using the rate of exchange ruling at the Statement of Financial Position date and the gains or losses OPERATIONAL EXPENDITURE on translation are included in the Statement of (i) OPERATING EXPENSES Income and Retained Earnings. > Operating expenses are recognised on Non-monetary assets and liabilities denominated an accruals basis and are allocated to the in foreign currencies that are stated at fair value specific business unit that they relate to. are retranslated to the functional currency at Where operating expenses relate to general foreign exchange rates ruling at the dates the management and administration such fair value was determined. Foreign exchange expenditure has been allocated to business differences arising on translation are recognised units based on headcount following the in the profit and loss account. merging of administrative and management processes. (ii) EMPLOYEE BENEFITS REVENUE RECOGNITION > The Group provides a range of benefits (i) TURNOVER to employees, including paid holiday arrangements. Short term benefits, including > Revenue is recognised to the extent that holiday pay and other similar non-monetary the Group and Authority obtains the right to benefits, are recognised as an expense in the consideration in exchange for its performance. period in which the service is received. Revenue is measured at the fair value of the consideration received, excluding discounts, > The Isle of Man Government operates a rebates, VAT and other sales taxes and duties. number of occupational pension schemes for staff employed under a variety of pay > Electricity supply - Turnover represents the agreements. One of these schemes, the value of electricity consumption during the Government Unified Scheme, also applies year, which includes an estimate of the sales to the Manx Utilities Authority. Once the value of units supplied to customers between contributions have been paid the Group the date of the last meter reading and the year has no further payment obligations. The end and the invoice value of other goods and contributions are recognised as an expense services provided, exclusive of value added tax. when they are due. Amounts not paid are > Gas supply - Gas supply turnover represents shown in accruals in the Statement of the value of wholesale natural gas supplied Financial Position. to the Isle of Man’s natural gas retailer, (iii) BORROWING COSTS together with charges relating to the use of Manx Utilities’ natural gas infrastructure. > All borrowing costs are recognised in the Statement of Income and Retained Earnings > Water supply - Turnover comprises income in the period in which they are incurred. from rates charges and metered charges for water supply and distribution, and is accounted for on an accruals basis. TANGIBLE ASSETS > Sewerage treatment – Turnover comprises sewerage charges and Isle of Man (i) RECOGNITION Government Treasury revenue grants, and is accounted for on an accruals basis. Tangible fixed assets are stated at cost less accumulated depreciation and accumulated > Flood risk management – Turnover comprises impairment losses. Cost includes the original Isle of Man Government Treasury revenue purchase price, costs directly attributable to grants, and is accounted for on an accruals basis. bringing the asset to its working condition for its intended use, dismantling and restoration > Telecommunications - Telecommunications costs. Where such expenditure is less than a turnover relates to the wholesale supply of specified de-minimis level it is not capitalised bandwidth by Manx Utilities on its fibre optic but is charged to the Statement of Income telecommunications cable between the Isle and Retained Earnings in the year in which it of Man and the United Kingdom, and on Manx Utilities’ on-Island metropolitan network.
46 MANX UTILITIES is incurred. Capital expenditure incurred on (ii) DEPRECIATION tangible assets that does not materially add to Depreciation is applied using a straight-line method the value of those assets is written off to the over the estimated operating lives of the assets, Statement of Income and Retained Earnings. which can be summarised as follows: Finance costs that are directly attributable to the construction of tangible fixed assets are capitalised as part of these assets.
Years
Land and buildings
Buildings 25-60
Vehicles, plant and equipment
Generation plant:
- Diesel stations 20
- Hydro-electric station 30
- Oil storage 25
- Combined Cycle Gas Turbine (“CCGT”) 25
- CCGT Components 3-9
New Water Treatment Works improvements 5-20
Pump station improvements 25
Meters (according to meter type) 10, 20
Vehicles and other equipment 3-10
Infrastructure assets
Distribution systems 40-60
Original sewerage mains 70-100
Raw water mains / relined sewerage mains 30-60
Gas pipeline systems 40-60
Telecommunication systems 3-15
Impounding Reservoirs 150
Depreciation is not provided on freehold land. (iii) SUBSEQUENT MEASUREMENT & ADDITIONS On other assets it is provided for against the Subsequent costs, including major inspections, original cost (less any estimated residual value) are included in the asset’s carrying amount or in equal annual instalments over the estimated recognised as a separate asset, as appropriate, useful economic lives of the assets. only when it is probable that economic benefits The estimated useful economic lives, residual associated with the item will flow to the values, and depreciation method are reviewed Group and the cost can be measured reliably. at each period end with the effect that any The carrying amount of any replaced asset is changes in estimates are accounted for on a derecognised. Major components are treated as prospective basis. Depreciation is first charged in a separate asset where they have significantly the year following that in which the expenditure different patterns of consumption of economic was incurred or, in respect of generation and benefits and are depreciated separately over its processing plant, the year of commissioning. useful life.
ANNUAL REPORT 2018/19 47 (iv) ASSETS IN THE COURSE HERITAGE ASSETS OF CONSTRUCTION Heritage assets are those assets that are Expenditure on assets in the course of intended to be preserved in trust for future construction is included in capital works in generations because of their cultural, progress. These assets are not depreciated until environmental or historical associations. Non- they are available for use. operational assets are those held primarily for this purpose. Operational heritage assets are those that are also used for other activities or to provide other services. Operational heritage LEASED ASSETS assets are accounted for within the principal At inception the Group assesses agreements asset category to which they relate. that transfer the right to use assets. Non-operational assets (including for example The assessment considers whether the works of art and antiques), have not been arrangement is, or contains, a lease based on valued where the incomparable nature of the the substance of the arrangement. assets means a reliable valuation is not possible, (i) FINANCE LEASED ASSETS or the level of costs of valuation greatly exceed the additional benefits derived by users of the Leases of assets that transfer substantially all accounts. In these cases, no value is reported the risks and rewards incidental to ownership for these assets in the Statement of Financial are classified as finance leases. Finance leases Position. Information about the non-operational are capitalised at commencement of the lease heritage assets is included in Note 22. as assets at the fair value of the leased asset or, if lower, the present value of the minimum lease payments calculated using the interest rate implicit in the lease. Where the implicit rate IMPAIRMENT OF NON-FINANCIAL ASSETS cannot be determined the Group’s incremental At each Statement of Financial Position date borrowing rate is used. Incremental direct costs, non-financial assets not carried at fair value incurred in negotiating and arranging the lease, are assessed to determine whether there is are included in the cost of the asset. an indication that the asset may be impaired. Assets are depreciated over the shorter of the If there is such an indication the recoverable lease term and the estimated useful life of the amount of the asset is compared to the asset. Assets are assessed for impairment at carrying amount of the asset. Where values each reporting date. have changed materially in the year, the valuations are adjusted to reflect the change. The capital element of lease obligations is When a major change in asset values occurs, recorded as a liability on inception of the for example due to physical damage, the arrangement. Lease payments are apportioned impairment loss is recognised in the Statement between capital repayment and finance charge, of Income and Retained Earnings. using the effective interest rate method, to produce a constant rate of charge on the If an impairment loss is subsequently reversed, balance of the capital repayments outstanding. the carrying amount of the asset is increased Where the lease payments change over time to the revised estimate of its recoverable the effective interest rate is reassessed annually amount, but only to the extent that the revised and the apportionment between capital carrying amount does not exceed the carrying repayment and finance charge is updated amount that would have been determined accordingly. (net of depreciation or amortisation) had no impairment loss been recognised in prior (ii) OPERATING LEASED ASSETS periods. A reversal of an impairment loss is Leases that do not transfer all the risks and recognised in the Statement of Income and rewards of ownership are classified as operating Retained Earnings. leases. Payments under operating leases are charged to the Statement of Income and Retained Earnings on a straight-line basis over INVESTMENTS IN SUBSIDIARY COMPANIES the period of the lease. Investments in subsidiary companies are held at cost less accumulated impairment losses.
48 MANX UTILITIES STOCKS DEFERRED INCOME Engineering stocks are valued at the lower of Customer contributions in respect of tangible cost and estimated selling price less costs to assets are treated as deferred income. Deferred sell (net realisable value). income is released to the Statement of Income and Retained Earnings over a 40 year period. Fuel is valued at the lower of cost and net realisable value accounted for on a ‘first in first out’ basis. The Strategic Fuel Reserves (Note 24) held on behalf of the Isle of Man FINANCIAL INSTRUMENTS Government are not included in the financial FRS 102 allows an entity to either adopt statements of Manx Utilities. Section 11 and 12 of FRS 102 in respect of At the end of each reporting period inventories recognising, derecognising, measuring and are assessed for impairment. A provision is disclosing basic and other financial instruments, made against slow-moving, obsolete, surplus, or to adopt the recognition and measurement deteriorated and unusable stocks at the end of provisions of either IAS 39 Financial each reporting period. Where a reversal of the Instruments: Recognition and Measurement or provision is required the charge is reversed, up to IFRS 9 Financial Instruments, both of which are the original provision, and is recognised as a credit international accounting standards. The Group in the Statement of Income and Retained Earnings. has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments. (i) FINANCIAL ASSETS CASH AND CASH EQUIVALENTS Basic financial assets, comprising trade and Cash and cash equivalents include cash in hand, other debtors, amounts due from subsidiaries deposits held at call with banks, other short-term and cash at bank, are initially recognised at highly liquid investments with original maturities transaction price, unless the arrangement of three months or less and bank overdrafts. Bank constitutes a financing arrangement, where the overdrafts, when applicable, are shown within transaction is measured at the present value financial liabilities in current liabilities. of the future receipts discounted at a market rate of interest. Such assets are subsequently carried at amortised cost using the effective interest method. PROVISIONS AND CONTINGENCIES At the end of each reporting period financial (i) PROVISIONS assets measured at amortised cost are assessed Provisions are recognised when the Group has for objective evidence of impairment. If an asset a present legal or constructive obligation as is impaired, the impairment loss is the difference a result of past events, it is probable that an between the carrying amount and the present outflow of resources will be required to settle value of the estimated cash flows discounted at the obligation and the amount of the obligation the asset’s original effective interest rate. The can be estimated reliably. impairment loss is recognised in the Statement of Income and Retained Earnings. (ii) CONTINGENCIES Other financial assets, including investments, Contingent liabilities are recognised where are initially measured at fair value, which is it is probable that there will be an outflow normally the transaction price. Such assets of resources and the amount can be reliably are subsequently carried at fair value and the measured at the reporting date. Contingent changes in fair value are recognised in the liabilities are disclosed in the financial Statement of Income and Retained Earnings, statements unless the probability of an outflow except that investments in equity instruments of resources is remote. that are not publically traded and whose Contingent assets are not recognised. fair values cannot be measured reliably are Contingent assets are disclosed in the financial measured at cost less impairment. statements when an inflow of economic Financial assets are derecognised when (i) the benefits is probable. The nature and estimated contractual rights to the cash flows from the financial effect of each item are disclosed. asset expire or are settled, or (ii) substantially all the risks and rewards of ownership of the asset are transferred to another party or (iii) despite having retained some significant risk
ANNUAL REPORT 2018/19 49 and rewards of ownership, control of the asset has been transferred to another party who has 4. CRITICAL ACCOUNTING the practical ability to unilaterally sell the asset JUDGEMENTS to an unrelated third party without imposing additional restrictions. AND ESTIMATION (ii) Financial liabilities UNCERTAINTY Basic financial liabilities, including trade and The preparation of financial statements requires other creditors, accruals, loans and finance the use of certain critical accounting estimates. leases, are initially recognised at transaction It also requires management to exercise its price, unless the arrangement constitutes judgement in the process of applying the a financing transaction, where the debt Group and Authority accounting policies. The instrument is measured at the present value of areas involving a higher degree of judgement the future payments discounted at a market or complexity, or areas where assumptions rate of interest. and estimates are significant to the financial statements, are set out below Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary Estimates and judgements are continually course of business from suppliers. Accounts evaluated and are based on historical payable are classified as current liabilities if experience and other factors, including payment is due within one year or less. If not, expectations of future events that are believed they are presented as non-current liabilities. Trade to be reasonable under the circumstances. creditors are recognised initially at transaction (i) DETERMINATION OF THE USEFUL LIVES price and subsequently measured at amortised OF TANGIBLE ASSETS (NOTE 11) cost using the effective interest method. The annual depreciation charge for tangible Derivatives, including forward foreign exchange assets is sensitive to changes in the estimated contracts and forward gas price contracts are useful economic lives and residual values not basic financial instruments. of the assets. The useful economic lives Derivatives are initially recognised at fair value and residual values are re-assessed annually. on the date a derivative contract is entered into They are amended when necessary to reflect and are subsequently re-measured at their fair current estimates, based on technological value. Changes in the fair value of derivatives advancement, future investments, economic are recognised in the Statement of Income and utilisation and the physical condition of the Retained Earnings in finance costs or finance assets. See Note 11 for the carrying amount income as appropriate. of tangible assets and Note 3 for the useful economic lives of each asset class. Financial liabilities are derecognised when the liability is extinguished, which is when the (ii) CONTINGENT LIABILITIES contractual obligation is discharged, cancelled Manx Utilities has both statutory and or expires. commercial obligations arising from its operating activities. These obligations may give rise to financial liabilities or costs in future ARITHMETIC ROUNDING years that arise from actions taken previously. Examples include the cost of decommissioning These financial statements are prepared using sites at the end of their operating lives, if figures extracted from Manx Utilities’ financial the cost of decommissioning a site exceeds systems which are rounded to the nearest the residual site value, or future costs arising penny, but presented here rounded to the from long-term agreements (such as wayleave nearest thousands of pounds. This may cause agreements). Whether such liabilities may some small differences between total amounts arise is highly uncertain and the financial shown and the sum of the amounts (as value of such liabilities cannot be reliably presented) relating to the total amount. predicted. Where circumstances mean a liability is considered likely to occur and its value can be reliably estimated then a provision is made within the financial statements along with consideration of whether there is the possibility for any reimbursement; where no such circumstances have been identified then no provision is made
50 MANX UTILITIES (iii) INVENTORY IMPAIRMENT During the year Manx Utilities has reviewed the inventory it holds to support its operations. Following the review, inventory held to enable the repair and maintenance of diesel and gas generation equipment for Peel and Pulrose is to be impaired on a straight line basis over the last 10 years of the useful economic lives of those assets.
5. SEGMENTAL ANALYSIS (GROUP)
2018 - 19
Electricity Gas Water Sewerage Flood Risk Telecoms Total
£’000s £’000s £’000s £’000s £’000s £’000s £’000s
TURNOVER
Total turnover 70,982 9,327 24,058 6,179 500 773 111,821 Inter-segmental (2,800) - (311) - - - (3,112) sales Third party 68,182 9,327 23,747 6,179 500 773 108,709 turnover Cost of sales (43,448) (6,415) (5,535) (2,550) - - (57,949)
Gross profit 24,733 2,911 18,212 3,629 500 773 50,760 Distribution (13,672) (501) (2,649) (5,693) (821) (747) (23,950) costs Administrative (5,684) - (1,657) (985) (56) - (8,382) expenses Other operating (281) - - - - - (281) losses OPERATING 5,096 2,410 13,906 (3,049) (376) 25 18,147 SURPLUS Net finance (15,431) costs Debt reduction -
NET SURPLUS 2,716
ANNUAL REPORT 2018/19 51 2017-18 (restated) (Note 28)
Electricity Gas Water Sewerage Flood Risk Telecoms Total
£’000s £’000s £’000s £’000s £’000s £’000s £’000s
TURNOVER
Total turnover 65,645 8,774 24,437 6,909 500 813 107,078 Inter-segmental (2,803) - (420) - - - (3,223) sales Third party 62,842 8,774 24,017 6,909 500 813 103,855 turnover Cost of sales (35,429) (5,565) (4,860) (1,972) - - (47,827)
Gross profit 27,413 3,209 19,157 4,937 500 813 56,029 Distribution (15,658) (501) (2,341) (5,260) (644) (826) (25,231) costs Administrative (5,008) - (1,557) (882) (49) - (7,496) expenses Other operating (9,298) - 534 190 - - (8,574) losses OPERATING (2,552) 2,708 15,793 (1,015) (193) (14) 14,728 SURPLUS Net finance (19,688) costs Debt reduction 95,000
NET SURPLUS 90,039
Manx Utilities structures its operations into 6 main business areas. Further details of the income and expenditure of each business unit is shown on the following pages. In October 2018 Manx Utilities presented a pricing review to Tynwald. This pricing review committed Manx Utilities to keep annual price adjustments by reference to annual general inflation and changes in wholesale gas prices through to 2023-24.
52 MANX UTILITIES ELECTRICAL SUPPLY
2018-19 2018-19 2017-18 2017-18
kWh Sold kWh Sold £’000s £’000s (Millions) (Millions) TURNOVER Electricity Sales for Island Demand: Domestic 158 27,411 161 24,604 Non-Domestic 66 10,425 65 10,212 Demand 135 19,561 133 19,393 Public Lighting 3 462 4 556 362 57,859 363 54,765 Electricity Export Sales 131 9,583 95 7,333 493 67,442 458 62,098 Settlement Discounts (505) (515) Total Electricity Sales 493 66,937 458 61,583 Capacity Sales 2,336 2,370 Other Income 1,709 1,692 Total Sales 70,982 65,645 Less inter-group sales (2,800) (2,803) External turnover 68,182 62,842 OPERATING COSTS Generation Costs (11,279) (7,793) Gas System Costs (1,675) (2,918) Distribution & Transmission Costs (7,258) (7,947) Administration and General Expenses (4,129) (3,473) (24,342) (22,132) £’000s £’000s Depreciation Generation (6,784) (7,628) Gas System (2,351) (2,460) Distribution & Transmission (2,387) (2,333) Land and buildings (1,555) (1,535) (13,078) (13,956) Fuel & Energy Costs for Island Demand (19,463) (15,923) Fuel & Energy Costs for Export Sales (5,921) (4,085) (62,805) (56,096) Unrealised loss on foreign (351) (2,260) currency exchange (note a) Gain/(Loss) on disposal/ impairment of fixed assets 70 (7,038) Total Operating Costs (63,086) (65,394) OPERATING SURPLUS 5,096 (2,552)
Note a: The unrealised loss of £0.3m (2017-18: loss of £2.3m) on foreign currency exchange is due to the annual revaluation of the long term commitment under the gas pipeline spur agreement, which is payable in Euros (see Note 18).
ANNUAL REPORT 2018/19 53 GAS SUPPLY
2018-19 2018-19 2017-18 2017-18 Therms Therms (thousands) £’000s (thousands) £’000s TURNOVER Sale of Gas 10,362 6,415 11,167 5,565 Capacity charges 619 764 Commodity charges 1,045 1,090 Network extension charges 1,248 1,355 9,327 8,774 OPERATING COSTS Purchase of Gas (6,415) (5,565) Depreciation on network extension (501) (501) (6,916) (6,066) CONTRIBUTION TO GAS SYSTEM COSTS 2,410 2,708
Loan repayments of £1,234,000 (2017-18: £1,234,000) in respect of the Gas Network Extension were received during the year. The cost of operating Manx Utilities’ gas infrastructure assets, including the finance charges in respect of capitalised gas pipeline capacity payments and the interest charges allocated to on-island gas assets is as follows:
2018-19 2017-18 £’000s £’000s GAS SYSTEM COSTS Operating costs (1,675) (2,918) Depreciation (2,351) (2,460) Interest charges (5,536) (6,327) (9,563) (11,706) Unrealised loss on foreign currency exchange (Note 18 (i)) (351) (2,260) Total Gas Division Costs (9,914) (13,966)
The total maximum capacity which is available for the supply of gas to Manx Utilities is determined by the long term strategic requirements of the Isle of Man and the contractual arrangements set out in Note 18.
54 MANX UTILITIES WATER SUPPLY
2018-19 2017-18 (restated) (Note 28) £’000s £’000s CHARGES FOR WATER Unmeasured - water rates 22,128 22,345 Metered 2,572 2,750 Other income 369 395 25,069 25,490 Less inter-group sales (311) (420) 24,758 25,017 Settlement Discounts (1,011) (1,053) External turnover 23,747 24,017 OPERATING COSTS Supply (4,017) (3,351) Distribution (1,738) (1,431) Administration and General Expenses (1,469) (1,317) (7,224) (6,099) Depreciation Supply (1,518) (1,509) Distribution (912) (910) Administration and General Expenses (187) (240) (2,617) (2,659)
Gain/(Loss) on disposal/impairment of fixed assets - (534) (9,841) (8,224) OPERATING SURPLUS 13,906 15,793
The total rateable value of properties charged under unmeasured water usage was £7.0 million (2017- 18: £7.0 million). The annual water rate was 341.80 pence in the pound (2017-18: 341.80 pence in the pound) with commercial and certain other properties at half rates.
ANNUAL REPORT 2018/19 55 SEWERAGE TREATMENT
2018-19 2017-18 (restated) (Note 28)
£’000s £’000s
CHARGES FOR SEWERAGE
Treasury revenue grant - 700
Sewerage charges 5,812 5,925
Other income 566 487
6,378 7,112
Settlement Discounts (199) (203)
6,179 6,909
OPERATING COSTS
Collection (3,524) (3,109)
Treatment (1,529) (1,120)
Administration and General Expenses (874) (738)
(5,927) (4,967)
Depreciation
Collection (2,169) (2,151)
Treatment (1,021) (852)
Administration and General Expenses (111) (143)
(3,301) (3,147)
Gain/(Loss) on disposal/impairment of fixed assets - 190
(9,228) (7,924)
OPERATING DEFICIT (3,049) (1,015)
The Treasury revenue grant is a non-repayable grant to fund operating costs and fund consolidated loans fund repayments to Treasury. The total rateable value of properties charged and connected to a sewer was £6.7 million (2017-18: £6.7 million). The annual Sewerage Rate was 98.00 pence in the pound (2017-18: 98.00 pence in the pound) with commercial and certain other properties at half rates.
56 MANX UTILITIES FLOOD RISK MANAGEMENT
2018-19 2017-18 (restated) (Note 28) £’000s £’000s
INCOME
Treasury revenue grant 500 500
500 500
OPERATING COSTS
Distribution (821) (644)
Administration and General Expenses (56) (49)
(876) (693)
OPERATING DEFICIT (376) (193)
The Treasury revenue grant is a non-repayable grant to fund operating costs.
TELECOMMUNICATIONS SUPPLY
2018-19 2017-18 (restated) (Note 28) £’000s £’000s
TURNOVER
Sales 773 813
OPERATING COSTS
Overheads (652) (701)
Depreciation (95) (126)
(614) (826)
OPERATING SURPLUS/(DEFICIT) 25 (14)
ANNUAL REPORT 2018/19 57 6. OPERATING SURPLUS Operating surplus is stated after charging:
2018-19 2017-18
£’000s £’000s
Inventory recognised as an expense 595 2,178
Operating lease expense 4,353 4,433
Depreciation 20,098 20,894
Gain/(loss) on disposals of tangible assets and impairment 61 (7,009)
Auditor’s remuneration
Statutory audit 35 35
Other services - 2
This will be the final year that KPMG provide external audit services to the Group and Authority. Grant Thornton has been appointed following a competitive tender process for a three year term commencing 1 April 2019.
7. TAXATION The Authority is exempt from income tax in accordance with Section 18A of the Income Tax Act 1970.
8. FEES AND REMUNERATION BOARD MEMBERS’ FEES The following were Board Members of the Manx Utilities Authority during the year and received fees as set out below
2018-19 2017-18
£’000s £’000s A J Allinson MHK (Chairman) - - T M Crookall MLC (Vice-Chairman) - - C D Allen (resigned 31 May 2019) 7 7 J A Cowan 7 7 W D Mummery 7 7 J J Reid (resigned 1 September 2017) - 3 21 24
Board Member fees are paid in accordance with the Clerk of Tynwald’s Office as part of Tynwald the Payment of Members’ Expenses Act 1989 and Members’ remuneration; the fees are reimbursed associated Orders (Members Of Tynwald (Annual to Government by Manx Utilities. The current Sums) Order 2014 SD 14/0079 and Statutory Chairman has opted to waive such fees. The Boards (Annual Sums) Order 2015 SD 15/0268). Vice-Chairman does not receive any additional The Chairman’s fees are paid through the Isle remuneration for their role at Manx Utilities. of Man Government payroll on instruction from
58 MANX UTILITIES DIRECTORS’ FEES Board Members of the Manx Utilities Authority who are also Directors of the subsidiary companies do not receive Directors’ Fees in addition to their Board Members’ fees. Directors of the subsidiary companies who are also employees of Manx Utilities do not receive Directors’ fees in addition to their employment remuneration. The following Directors are not a Board Member but were Directors during the year and received fees set out below:
2018-19 2017-18
£’000s £’000s
E-llan Company Limited:
A King (resigned 10 November 2017) - 4
- 4
Manx Cable Company Limited:
C J L Spencer 7 7
7 7
KEY MANAGEMENT COMPENSATION The key management of Manx Utilities comprises executive and non-executive roles. The non- executive key management comprises the Board Members and Directors whose fees are set out above. Executive management comprises Manx Utilities’ employees who attend executive team meetings. The aggregate remuneration payable to members of this team is as follows:
2018-19 2017-18
£’000s £’000s
Executive Management 598 576
Non-Executive Management 29 31
Key Management Compensation 627 607
EMPLOYEE REMUNERATION The number of officers and employees of Manx Utilities with remuneration in excess of £50,000 and whose remuneration fell into the following bands is:
2018-19 2017-18
(employees) (employees)
£50,000 - £75,000 75 71
£75,000 - £100,000 8 6
£100,000 - £125,000 1 1
£125,000 - £150,000 1 1
ANNUAL REPORT 2018/19 59 9. NET INTEREST EXPENSE
2018-19 2017-18 (restated) (Note 28) £’000s £’000s Investment income: Dividend income 1,282 1,219 Realised gain/(loss) on investments at fair value 175 (601) through profit or loss Unrealised (loss)/gain on investments at fair value 2,493 (1,918) through profit or loss Investment costs (134) (122) Bank interest receivable 138 79 3,955 (141) Less Interest Payable on: Isle of Man Treasury Bond 2034 (10,156) (10,144) Isle of Man Treasury Bond 2030 (4,219) (4,219) Consolidated Loans Fund (3,642) (3,910) Local Authority loan interest (89) (146) Lease Finance (3,269) (4,103) Other Finance Charges (53) (33) Unrealised gain on Currency Balances (118) 1,078 Amortisation of Bond Issue Expenses (505) (505) (22,051) (21,983) Gain/(loss) on forward purchase contracts: Forward gas purchases 2,961 2,911 Forward Electricity sales 147 - Forward foreign currency purchases (442) (475) 2,666 2,436 NET INTEREST PAYABLE (15,431) (19,688) GAIN ON DEBT REDUCTION - 95,000
Interest on Isle of Man Government Treasury Consolidated Loans Fund advances (see Note 17) was set at 2.0% (2017-18: 1.5%).
10. INVESTMENTS IN SUBSIDIARY COMPANIES Manx Utilities has the following wholly-owned subsidiaries included in the Group financial statements:
> e-llan Communications Limited was increased its authorised share capital to incorporated in the Isle of Man on 500,000 £1 ordinary shares and Manx 30 October 2007. Its principal activity is Utilities subscribed to an additional 499,999 to provide wholesale telecommunications ordinary shares, increasing its investment in services utilising fibre optic cable. During the company to £500,000. the year, e-llan Communications Limited
60 MANX UTILITIES > Manx Cable Company Limited was On 18 February 2019 a previous subsidiary incorporated in the Isle of Man on company of Manx Utilities, PGT Limited, was 6 May 1998. Its principal activity was to dissolved. PGT Limited was incorporated in construct and operate an electricity cable the Isle of Man on 10 December 2001 and its link between the United Kingdom and the principal activity was to construct the Pulrose Isle of Man which it now leases to Manx Combined Cycle Gas Turbine power station for Utilities. Manx Cable Company Limited has its customer, the Manx Electricity Authority; been accounted for using the acquisition the company had been dormant for many years method of accounting. since the power station was completed.
11. TANGIBLE ASSETS GROUP Summary
Infrastructure Plant, Freehold Land Total GROUP Assets Equipment and & Buildings Vehicles (note a) (note b)
£000 £000 £000 £000
At 31 March 2018
Cost 455,225 292,372 57,430 805,027
Accumulated depreciation (151,051) (159,994) (26,056) (337,101)
Net book amount 304,174 132,378 31,374 467,926
Year ended 31 March 2019
Opening net book amount 304,174 132,378 31,374 467,926
Additions 7,445 2,813 - 10,258
Depreciation (9,939) (8,812) (1,347) (20,098)
Closing net book amount 301,679 126,379 30,027 458,086
At 31 March 2019
Cost 462,669 294,753 57,430 814,852
Accumulated depreciation (160,990) (168,374) (27,403) (356,766)
Net book amount 301,679 126,379 30,027 458,086
There have been disposals of assets during the year, but these were all fully depreciated. The net book value of the disposals/impairments was £Nil (2017-18: £7.6 million) resulting in a gain on disposal of £0.1m (2017-18: loss £7.0 million).
ANNUAL REPORT 2018/19 61 (a) Infrastructure Assets
Electricity Gas Pipeline Sewerage Water Total Interconnector Systems Distribution Supply and GROUP and Distribution Distribution Systems
£000 £000 £000 £000 £000
At 31 March 2018
Cost 156,230 121,730 104,442 72,823 455,225
Accumulated depreciation (63,451) (35,226) (33,935) (18,439) (151,051)
Net book amount 92,778 86,505 70,507 54,383 304,174
Year ended 31 March 2019
Opening net book amount 92,778 86,505 70,507 54,383 304,174
Additions 2,937 2 277 4,228 7,445
Depreciation (3,678) (2,852) (2,169) (1,241) (9,939)
Closing net book amount 92,038 83,654 68,616 57,371 301,678
At 31 March 2019
Cost 159,167 121,733 104,719 77,051 462,670
Accumulated depreciation (67,129) (38,078) (36,103) (19,680) (160,990)
Net book amount 92,038 83,654 68,616 57,371 301,680
(b) Plant, Equipment and Vehicles
Electricity Water Sewerage Vehicles & Total GROUP Generation Treatment Treatment Equipment Plant £000 £000 £000 £000 £000
At 31 March 2018
Cost 181,255 45,624 55,836 9,656 292,372
Accumulated depreciation (120,423) (18,284) (14,021) (7,265) (159,994)
Net book amount 60,832 27,340 41,815 2,391 132,378
Year ended 31 March 2019
Opening net book amount 60,832 27,340 41,815 2,391 132,378
Additions 1,452 32 328 1,001 2,813
Depreciation (6,095) (1,189) (1,021) (507) (8,812)
Closing net book amount 56,189 26,183 41,122 2,885 126,379
At 31 March 2019
Cost 182,707 45,656 56,164 10,225 294,753
Accumulated depreciation (126,518) (19,473) (15,043) (7,340) (168,374)
Net book amount 56,189 26,183 41,122 2,885 126,379
62 MANX UTILITIES AUTHORITY Summary
Infrastructure Plant, Equipment Freehold Land & Total AUTHORITY Assets & Vehicles Buildings (note c) (note d)
£000 £000 £000 £000
At 31 March 2018
Cost 393,563 292,372 57,430 743,365
Accumulated depreciation (132,080) (159,994) (26,056) (318,130)
Net book amount 261,483 132,378 31,374 425,235
Year ended 31 March 2019
Opening net book amount 261,483 132,378 31,374 425,235
Additions 7,204 2,813 - 10,016
Depreciation (8,649) (8,812) (1,347) (18,808)
Closing net book amount 260,038 126,379 30,027 416,446
At 31 March 2019
Cost 400,767 294,753 57,430 752,950
Accumulated depreciation (140,729) (168,374) (27,403) (336,505)
Net book amount 260,038 126,379 30,027 416,446
(c) Infrastructure Assets
Electricity Gas Pipeline Sewerage Water Total AUTHORITY Distribution Systems Distribution Supply and Systems Distribution £000 £000 £000 £000 £000
At 31 March 2018
Cost 94,568 121,730 104,442 72,823 393,563
Accumulated depreciation (44,480) (35,226) (33,935) (18,439) (132,080)
Net book amount 50,088 86,505 70,507 54,383 261,483
Year ended 31 March 2019
Opening net book amount 50,088 86,505 70,507 54,383 261,483
Additions 2,696 2 277 4,228 7,204
Depreciation (2,387) (2,852) (2,169) (1,241) (8,649)
Closing net book amount 50,397 83,654 68,616 57,371 260,038
At 31 March 2019
Cost 97,264 121,733 104,719 77,051 400,767
Accumulated depreciation (46,867) (38,078) (36,103) (19,680) (140,729)
Net book amount 50,397 83,654 68,616 57,371 260,038
ANNUAL REPORT 2018/19 63 (d) Plant, Equipment and Vehicles
Electricity Water Sewerage Vehicles & Total AUTHORITY Generation Treatment Treatment Equipment Plant
£000 £000 £000 £000 £000
At 31 March 2018
Cost 181,255 45,624 55,836 9,656 292,372
Accumulated depreciation (120,423) (18,284) (14,021) (7,265) (159,994)
Net book amount 60,832 27,340 41,815 2,391 132,378
Year ended 31 March 2019
Opening net book amount 60,832 27,340 41,815 2,391 132,378
Additions 1,452 32 328 1,001 2,813
Depreciation (6,095) (1,189) (1,021) (507) (8,812)
Closing net book amount 56,189 26,183 41,122 2,885 126,379
At 31 March 2019
Cost 182,707 45,656 56,164 10,225 294,753
Accumulated depreciation (126,518) (19,473) (15,043) (7,340) (168,374)
Net book amount 56,189 26,183 41,122 2,885 126,379
12. DEBTORS
Group 2019 Group 2018 Authority 2019 Authority 2018 (restated) (restated) (Note 28) (Note 28) £’000s £’000s £’000s £’000s
Falling due within one year:
Trade Debtors and Prepayments 3,075 2,818 2,683 2,284
Accrued Income Receivable 10,999 10,085 10,999 10,085
e-llan Communications Limited - - 61 1,593
Manx Cable Company Limited - - 16,208 17,853
14,074 12,903 29,951 31,816
The balances due to the Authority from the subsidiary companies are unsecured, interest free and repayable on demand.
64 MANX UTILITIES 13. CASH AND CASH EQUIVALENTS
Group 2019 Group 2018 Authority 2019 Authority 2018
£’000s £’000s £’000s £’000s
Cash at Bank 23,263 29,869 22,839 28,773
Cash held within Bond Repayment Fund 8,039 8,822 8,039 8,822
31,302 38,691 30,878 37,596
Cash is held with financial institutions having been rated by Fitch Ratings Ltd with a short-term issuer default rating of F2 or better.
14. INVESTMENTS
Group 2019 Group 2018 Authority 2019 Authority 2018
£’000s £’000s £’000s £’000s
Opening balance 58,622 58,842 58,622 58,842
Transferred from cash 8,000 - 8,000 -
Investment returns 3,816 (220) 3,816 (220)
Closing balance 70,438 58,622 70,438 58,622
The Bond Repayment Fund comprises:
Fixed interest securities 33,105 24,429 33,105 24,429
Equities 29,295 25,370 29,295 25,370
Other investments - - - -
Total non-cash investments 62,400 49,800 62,400 49,800
Cash balances 8,039 8,822 8,039 8,822
70,439 58,622 70,439 58,622 Investments held above are presented in the balances sheet as follows: Investments at fair value through the Statement of Income and 62,400 49,800 62,400 49,800 Retained Earnings Cash and cash equivalents 8,039 8,822 8,039 8,822
70,439 58,622 70,439 58,622
Investments consist of the Bond Repayment During the year Manx Utilities transferred a Fund which will be used to repay Manx Utilities’ further £6.5 million into the Bond Repayment Bonds in 2030 and 2034. The Repayment fund Fund in respect of its 2017-18 contribution to is segregated from the other cash balances the fund as well as a further £1.5m in respect of and investments of Manx Utilities and is the 2018/19 contribution to the fund. administered on behalf of Manx Utilities by the Isle of Man Government Treasury. Financial assets are measured at fair value. The financial assets are tradable securities and are priced using stock market prices.
ANNUAL REPORT 2018/19 65 15. CREDITORS
Group 2019 Group 2018 Authority 2019 Authority 2018 (restated) (restated) (Note 28) (Note 28) £’000s £’000s £’000s £’000s
Falling due within one year:
Trade Creditors 623 969 549 908
Accruals and Other Creditors 8,918 10,122 8,507 9,698
9,541 11,091 9,056 10,606
Falling due after more than one year:
Accruals and Other Creditors - - - -
The amounts payable within one year are non-interest bearing, unsecured and are repayable on demand.
16. DEFERRED INCOME
Group 2019 Group 2018 Authority 2019 Authority 2018
£’000s £’000s £’000s £’000s
Falling due after more than one year:
Customers’ Contributions
Opening Balance 12,856 12,595 12,856 12,595
Received in the year 673 767 673 767 Released to Statement of Income in (507) (507) (507) (507) the year Closing Balance 13,022 12,856 13,022 12,856
66 MANX UTILITIES 17. AMOUNTS DUE TO GOVERNMENT
Group Group Authority Authority 2019 2018 2019 2018 (restated) (restated) (Note 28) (Note 28)
£’000s £’000s £’000s £’000s
Falling due within one year:
Consolidated Loans Fund 7,507 13,361 7,507 13,361
Economic Development Fund Loan - 40 - -
Local Authority loans 253 234 253 234
Operating Balance 201 2,265 201 2,265
Closing Balance 7,961 15,901 7,691 15,861
Falling due after one year:
Isle of Man Treasury Bond 262,287 262,075 262,287 262,075
Consolidated Loans Fund 170,607 165,198 170,607 165,198
Economic Development Fund Loan - - - -
Local Authority loans 1,964 2,236 1,964 2,236
Closing Balance 434,858 429,509 434,858 429,509
Total amounts due:
Isle of Man Treasury Bond 262,287 262,075 262,287 262,075
Consolidated Loans Fund 178,114 178,559 178,114 178,559
Economic Development Fund Loan - 40 - -
Local Authority loans 2,218 2,471 2,218 2,471
Operating Balance 201 2,265 201 2,265
Closing Balance 442,819 445,410 442,819 445,370 The Consolidated Loans Fund comprises borrowings as follows: Repayable over 20 years commencing on 31 March 2016 42,400 45,050 42,400 45,050
Repayable over 30 years 122,467 120,262 122,467 120,262 Natural gas network extension repayable over 40 years 13,247 13,247 13,247 13,247
Total 178,114 178,559 178,114 178,559
The Isle of Man Treasury Bonds comprise The amount of £262.3 million (2018: £262.1 two Bonds: million) includes unpaid but accrued interest to 31 March 2019 of £6.3 million (2018: £6.2 million). i. £75 million nominal value at 5.625% per annum with a maturity date of In 2008-09 an amount of £400,000 was 29 March 2030 to fund water infrastructure advanced from The Economic Development Fund improvements; and to fund the initial capital investment of e-llan Communications Limited. This loan was repayable ii. £185 million nominal value at 5.375% over ten years and has been repaid in full. The per annum with a maturity date of Local Authority Loans are in respect of obligations 14 August 2034 to fund electricity taken on for sewer mains and sewerage assets infrastructure improvements. transferred to Manx Utilities prior to 2007.
ANNUAL REPORT 2018/19 67 Interest payable on the Consolidated Loans Loans Fund of the Isle of Man Government Fund is at a variable interest rate as determined should be reduced by £95 million. This annually by Isle of Man Government Treasury. reduction was accounted for as a gain for Manx For the year under review the interest rate was Utilities within the Statement of Income and set at 2.0% (2017-18: 1.5%). During the prior Retained Earnings. year, at the October 2017 sitting of Tynwald, All of the amounts due by the Group and the following a review of Manx Utilities’ financial Authority above are unsecured. position it was agreed that the amount of debt due from Manx Utilities to the Consolidated
18. OTHER FINANCIAL ASSETS AND LIABILITIES
Group 2019 Group 2018 Authority 2019 Authority 2018 £’000s £’000s £’000s £’000s Financial Assets Falling due within one year: Forward purchases of natural gas - 196 - 196 Forward sales of electricity - - - - Forward purchases of currency - - - - Falling due after one year: Forward purchases of natural gas 4,015 2,607 4,015 2,607 Forward sales of electricity 147 - 147 - Forward purchases of currency - - - - 4,163 2,803 4,163 2,803
Group 2019 Group 2018 Authority 2019 Authority 2018 Financial Liabilities £’000s £’000s £’000s £’000s Falling due within one year: Finance leases 4,999 4,469 4,999 4,469 Forward purchases of natural gas 2,958 - 2,958 - Forward sales of electricity - - - - Forward purchases of currency 348 79 348 79 8,305 4,549 8,305 4,549 Falling due after one year: Finance leases 20,333 25,049 20,333 25,049 Forward purchases of natural gas - - - - Forward sales of electricity - - - - Forward purchases of currency 173 - 173 - 20,506 25,049 20,506 25,049 Total 24,649 26,795 24,649 26,795
Group 2019 Group 2018 Authority 2019 Authority 2018 Net Financial Liabilities £’000s £’000s £’000s £’000s Net liabilities falling due within one 8,305 4,353 8,305 4,353 year Net liabilities falling due after one 16,344 22,442 16,344 22,442 year Total 24,649 26,795 24,649 26,795
68 MANX UTILITIES (i) Finance leases The right to use the asset has been included in tangible assets and the capital cost is The Isle of Man Pipeline Connection Agreement depreciated over 60 years. Operating and relates to the use of the spur pipeline linking maintenance charges also arise under the spur the Moffat Distribution System and the west inter-connector agreement and are charged to coast of the Isle of Man. Under the terms of the the Statement of Income and Retained Earnings. agreement, Manx Utilities pays the operator for the construction costs of the spur pipeline until The amounts due under this agreement are 30 September 2023. payable in Euros. Forward purchase contracts are employed to mitigate the impact of The finance liability represents the present exchange rate movements; further information value of expected future capacity payments regarding these arrangements are included discounted at an interest rate of 10.7% (2017- below. 18: 10.7%). The monthly payments made by Manx Utilities increase accordingly to a The Group had the following future minimum prescribed formula. The effective interest lease payments for each of the following periods: has been reassessed based on the value of payments made during each year.
Group 2019 Group 2018 Authority 2019 Authority 2018 £’000s £’000s £’000s £’000s Payments due: Not later than one year 4,999 4,469 4,999 4,469 Later than one year and not later 17,366 24,779 17,366 24,779 than five years Later than five years - - - - Total gross payments 22,365 29,248 22,365 29,248 Add: finance charges 2,967 270 2,967 270 Carrying amount of liability 25,332 29,519 25,332 29,519
(ii) Forward Purchase and Sale Contracts (b) Manx Utilities has entered into a number of contracts to sell electricity into the (a) Manx Utilities has entered into a GB wholesale market at a pre-determined number of contracts to purchase gas at price for delivery between October 2019 a pre-determined price for delivery up and March 2020, in order to secure an to March 2020, in order to reduce gas price additional positive financial contribution volatility that may be suffered by customers for Manx Utilities. This partially offsets by seeking to achieve gas purchase cost fixed costs that would otherwise be borne consistent with the three-year average by domestic and commercial electricity forward price for the relevant gas season. customers on the Isle of Man. At the At the Statement of Financial Position date Statement of Financial Position date the amount of these commitments was the amount of these commitments was £31.2 million (2018: £32.7 million). £2.5 million (2018: £nil). The contracts are measured at fair value, The contracts are measured at fair value, which is determined using valuation which is determined using valuation techniques that utilise observable inputs. techniques that utilise observable inputs. The key inputs used in valuing the forward The key inputs used in valuing the forward purchase contracts are the forward market sale contracts are the forward market price price at the Statement of Financial Position at the Statement of Financial Position date, date, the quantity of gas purchased and the the quantity of electricity sold and the contracted price for the purchases. The fair contracted price for the sales. The fair value value of the forward natural gas purchase of the forward electricity sale contracts contracts is an asset of £1.1 million (2018: is an asset of £0.1 million (2018: £nil), £2.8 million), being the market value of the being the market value of the contracts of contracts of £32.2 million (2018: £35.5 million) £2.4 million (2018: £nil) less the contractual less the contractual commitments of commitments of £2.5 million (2018: £nil). £31.2 million (2018: £32.7 million).
ANNUAL REPORT 2018/19 69 (c) Manx Utilities enters into forward contracts CREDIT RISK to purchase Euros in order to protect Manx Utilities is at risk from its customers against foreign currency exchange volatility defaulting in making payments for goods and on charges paid in respect of the Gas services that have been supplied to them. Manx Interconnector and the Spur Pipeline, Utilities’ customers cover a wide spectrum of which are invoiced in Euros, and therefore individuals and businesses and economic or provide certainty of future payments for social hardships present a risk to Manx Utilities. periods of up to three-year in advance. Manx Utilities has effective debt management At the Statement of Financial Position policies and procedures in place and the date Manx Utilities had contracts in place current level of bad debts requiring write-off is for monthly commitments to purchase very low. Euros at predefined exchange rates until March 2022. The total nominal amount In addition to credit risks arising from of these contracts at 31 March 2019 was customers, Manx Utilities is also exposed to €22.4 million which equates to a Sterling credit risk in respect of its forward purchase commitment of £20.2 million (2018: and sale contracts. These counter parties €13.2 million, £11.7 million). include international energy businesses and financial institutions. Manx Utilities only The forward currency contracts are transacts with large, reputable businesses and measured at fair value, which is determined monitors its exposure with these entities on an using valuation techniques that utilise on-going basis. observable inputs. The key inputs used in valuing the derivatives are the forward exchange rates for Sterling to Euros and the contracted price for the purchases. MARKET RISK The fair value of the forward foreign currency contracts is an liability of Manx Utilities derives the majority of its £0.5 million (2018: liability £0.1 million), income from a limited number of markets, being the market value of the contracts of principally being the supply and distribution of £19.7 million (2018: £11.6 million) less the electricity, water and sewerage services on the contractual commitments of £20.2 million Isle of Man. (2018: £11.7 million). Natural gas is purchased from the United Exposures to foreign currency, credit, liquidity Kingdom wholesale gas market and represents and cash flow interest rate risks arises in the a significant proportion of the annual normal course of business. These risks are expenditure of Manx Utilities. Natural gas limited by Manx Utilities’ financial management prices can be volatile, though Manx Utilities policies and practices described below. enters into forward purchase contracts in order to reduce the impact of market volatility. Changes to these markets are likely to have significant impacts on Manx Utilities’ FOREIGN CURRENCY RISK financial position. Manx Utilities has finance lease commitments and contractual capacity commitments denominated in Euros. It seeks to purchase Euros in advance of expected payments in INTEREST RATE RISK order to reduce foreign currency exchange Manx Utilities obtains its financing via the volatility. In addition a number of significant Treasury of the Isle of Man Government. assets are purchased, or have significant Interest rates are fixed either by bond maintenance expenditure, denominated in coupon, or from time to time by the Isle of non-Sterling currencies (United States Dollars, Man Government for the Loan Funds they Euros and Canadian Dollars). Where such future administer. expenditure is identified steps are taken to purchase sufficient foreign currency to make The interest rate set by the Government is not payments as they fall due. intended to be increased during the next 5 years and is consider to have low volatility.
70 MANX UTILITIES LIQUIDITY RISK As a utilities provider, the fixed costs of Manx Utilities (e.g. depreciation, interest charges) The Board Members have the ultimate represent a high proportion of its overall costs responsibility for liquidity risk management and whereas the majority of its income varies with maintaining adequate reserves, banking facilities customer demand. Electricity demand has been and Government borrowing facilities. Manx falling in recent years and this has a potentially Utilities maintains a Long Term Financial Plan significant adverse impact on the future projecting cash flows for 20 years into the future financial performance of Manx Utilities. and this plan is reviewed and updated annually. The long-term nature of this financial plan means it is sensitive to changes in assumptions and there are also significant uncertainties as to how socio-economic factors and technology will change over such a time frame.
19. RESERVES
Group 2019 Group 2018 Authority 2019 Authority 2018 (restated) (restated) £’000s £’000s £’000s £’000s
Reserves at the beginning of the Year 79,858 (10,181) 77,981 (11,829)
Surplus before dividends received 2,581 90,039 (5,277) 83,310 Dividend received from subsidiary - - 7,000 6,500 company (see note 20) Statement of Income Surplus 2,581 90,039 1,723 89,810
Reserves at the end of the Year 82,440 79,858 79,704 77,981
20. DIVIDEND RECEIVED FROM SUBSIDIARY COMPANY Included within the Authority’s profit for the distributed from profits accumulated in Manx year is a dividend of £7,000,000 (2017-18: Cable Company Limited derived from rental £6,500,000). Dividends are receivable from income received from Manx Utilities for the use Manx Cable Company Limited, a wholly-owned of the sub-sea electricity cable (see Note 10). subsidiary of Manx Utilities. The dividends are
ANNUAL REPORT 2018/19 71 21. NOTES TO THE STATEMENT OF CASH FLOWS
Group 2018-19 Group 2017-18
£’000s £’000s Reconciliation of profit on ordinary activities to net cash inflow from operating activities
Profit for the financial year 2,716 90,039
Adjustments for:
Interest and investment income (3,955) 141
Interest payable and similar charges 22,051 21,983
Gain on forward purchases and sales (2,666) (2,436)
Debt reduction - (95,000)
Surplus on ordinary activities before interest 18,147 14,728
Depreciation charges and net adjustment to fixed assets 20,099 20,895
(Gain)/Loss on disposal/impairment of fixed assets (61) 7,009
Deferred income release (507) (507)
Unrealised gain on forward purchase and sale contracts 2,666 2,436
Unrealised loss on currency revaluation 4,303 821
Movements in working capital
Decrease in Stocks 80 258
Decrease/(Increase) in Debtors (1,004) 3,153
(Decrease) in Creditors (1,684) (4,500)
Net cash inflow from operating activities 42,039 44,293
POLICY FOR ACQUISITION, PRESERVATION, 22. HERITAGE ASSETS MANAGEMENT AND DISPOSAL OF NATURE AND SCALE OF ASSETS HELD BY HERITAGE ASSETS MANX UTILITIES The assets were purchased or Heritage assets are those assets that are constructed historically. intended to be preserved in trust for future generations because of their cultural, environmental or historical value. Examples of heritage assets include historic buildings, ACCOUNTING TREATMENT OF archaeological sites, monuments, statues, HERITAGE ASSETS military and scientific equipment of historic It is the view of the Board that the costs importance, and works of art. incurred to reliably value these assets on an Heritage Assets currently include: on-going basis, even if such values could be obtained, would be disproportionate to any > Land and Buildings – such as land used for additional benefits derived by Manx Utilities water catchment, historic infrastructure and users of these financial statements. assets and the former Lord Street power station building. > Other artefacts – such as historical photographs and historical equipment.
72 MANX UTILITIES 23. CAPITAL AND OTHER COMMITMENTS CAPITAL COMMITMENTS
Group 2019 Group 2018 Authority 2019 Authority 2018 £’000s £’000s £’000s £’000s Contracts for future capital expenditure not provided in the 2,012 2,012 2,012 2,012 financial statements
Amounts authorised but not contracted relate to capital expenditure approved by Tynwald as part of the Isle of Man Government’s annual budget, but which has not yet been expended with specific suppliers.
OPERATING LEASES In 2002, Manx Utilities entered into contractual arrangements to obtain capacity on the natural (i) Operating Leases Payments Payable by gas inter-connector between the United Manx Utilities Kingdom and the Republic of Ireland and to In 1999, Manx Utilities entered into contractual construct a spur pipeline to connect the Isle of arrangements with the Manx Cable Company Man to the inter-connector. These contractual Limited to obtain capacity on an electricity inter- arrangements were entered into by Manx Utilities connector between the United Kingdom and the in order to bring natural gas to the Isle of Man to Isle of Man. These contractual arrangements were supply Manx Utilities and other third party users. entered into by Manx Utilities in order to supply The Group and Authority had the following electricity to the Isle of Man from the United future minimum lease payments under non- Kingdom and to sell electricity generated in the cancellable operating leases for each of the Isle of Man to the United Kingdom. following periods:
Group 2019 Group 2018 Authority 2019 Authority 2018 £’000s £’000s £’000s £’000s Payments due: Not later than one year 4,385 3,999 13,891 13,175 Later than one year and not later than five years 13,155 15,996 51,179 52,700 Later than five years - - 152,096 155,992
During the year £4.6m was recognised as an expense in the Statement of Income in respect of operating leases.
ii) Operating Leases Payments Payable distribute natural gas around the Isle of Man to to Manx Utilities supply the Manx Gas’s own local distribution networks, and other third party users. In 2011, Manx Utilities entered into contractual arrangements to provide capacity on the Isle The Group and Authority had the following of Man natural gas Low Pressure Transmission future minimum capacity payments due to it, System. These contractual arrangements were assuming a 40 year lease period, for each of entered into by Manx Utilities in order to the following periods:
Group 2019 Group 2018 Authority 2019 Authority 2018 £’000s £’000s £’000s £’000s Receipts due: Not later than one year 1,226 1,225 - 1,225 Later than one year and not later than five years 4,903 4,900 - 4,900 Later than five years 34,321 34,300 - 34,300
ANNUAL REPORT 2018/19 73 ii) Operating Leases Payments Payable distribute natural gas around the Isle of Man to to Manx Utilities supply the Manx Gas’s own local distribution networks, and other third party users. In 2011, Manx Utilities entered into contractual arrangements to provide capacity on the Isle The Group and Authority had the following of Man natural gas Low Pressure Transmission future minimum capacity payments due to it, System. These contractual arrangements were assuming a 40 year lease period, for each of entered into by Manx Utilities in order to the following periods:
24. STRATEGIC FUEL RESERVES The financial statements do not include Man Government. The value of these reserves strategic fuel reserves held by Manx Utilities at 31 March 2019 was £1,941,578 (2018: at Peel and Pulrose on behalf of the Isle of £1,527,000).
25. STAFF PENSION SCHEME The Isle of Man Government Unified Scheme is may pay a higher contribution if they wish to a final salary pension scheme which is available purchase additional years of service. for Manx Utilities Authority employees, Civil The extent of Manx Utilities’ liabilities under Servants and Whitley Council staff employed the scheme is limited to the contributions by Manx Utilities. made annually to the scheme and therefore Under the provisions of the scheme, the the scheme is accounted for as a defined contributions made by Manx Utilities are 22.1% contribution scheme. Details of the deficit of (2017-18: 22.1%) of pensionable pay and the the Government Unified Scheme are available employee contributions are 6.00% for the in the Isle of Man Government’s annual financial Standard scheme and 8.75% for the Protected statements. The Isle of Man Government is scheme (2017-18: 5.00% and 7.75%). Employees responsible for funding any deficit of the Government Unified Scheme.
26. EVENTS AFTER THE REPORTING PERIOD There have been no material events since 31 March 2019.
27. RELATED PARTY TRANSACTIONS The Group and Authority have transactions the supply of utility services and contracts and amounts due to Isle of Man Government as of employment on Manx Utilities’ standard detailed in Note 17. terms and conditions. Details of fees and remuneration paid to members of the Board Manx Utilities’ other related party transactions and Key Management are disclosed in Note 8. were with wholly-owned subsidiaries and so have not been disclosed. There were no transactions with key management personnel during the year other than in respect of
74 MANX UTILITIES 28. COMPARATIVE AMOUNTS During the preparation of these financial the prior year surplus and closing reserves of statements it was identified that: £1.0m for both the Group and the Authority; > There was a debit balance on a payroll control > An adjustment made in the previous year for account that related to payroll expenses that metered water accruals had been incorrectly had been paid in prior years but which had applied with the debit and credit entries not been recognised in the Statement of reversed, the effect of this was to increase Income at the relevant time, the effect of this prior year profit and closing reserves by adjustment was to decrease opening reserves £0.7m for both the Group and the Authority; for the prior year by £0.8m for both the > In previous year dividends due from the Group and the Authority; subsidiary company Manx Cable Company had > There were errors relating to the under been recognised twice, once as received in recognition of income, and prepayments the year and once as being a receivable at the within the subsidiary company e-llan year end. The effect of this adjustment was to Communications Limited, the effect of reduce the Authority’s reserves by £6.5m. these adjustments was an increase to the These matters have been corrected during the prior year surplus, and to increase both preparation of these financial statements and opening and closing reserves for the prior the comparative amounts for 2017-18 and as at year for the Group. 31 March 2018 have been restated as required. The > There was an error on the closing operating impact on the previously stated surplus for the balance between Manx Utilities and the Isle financial year ended 31 March 2018 and the total of Man Government at 31 March 2018, the reserves as at 31 March 2018 is shown below: effect of adjusting for this was an increase to
2017-18
£’000s
Surplus/(deficit) for the financial year:
As previously stated 88,368
Distribution costs - subsidiary company prepayments adjustment 21
Administrative expenses - government loan balance adjustment 950
Turnover - metered water accrual adjustment 701
As restated 90,039
Group 2018 Authority 2018 £’000s £’000s Reserves at year-end: As previously stated 78,964 83,630 Creditors - control account adjustment to opening reserves (800) (800) Debtors- subsidiary company prepayments adjustment 21 - Turnover - subsidiary company adjustment (income – adjustment to opening reserves) 23 - Due to government - operating balance adjustment 950 950 Turnover - metered water accrual adjustment 701 701 Dividend received - correction of MCC dividend accrual - (6,500) As restated 79,858 77,981
ANNUAL REPORT 2018/19 75 Manx Utilities PO Box 177 Douglas Isle of Man IM99 1PS t: +44 (1624) 687687 e: [email protected] www.manxutilities.im
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