RNS Number : 9506H
Welsh Water Utilities Finance PLC
12 November 2008
Embargoed until 7.00am on Wednesday 12th November 2008
NEWS FROM WELSH WATER
Welsh Water's 'customer dividend' helps customers deal with the economic downturn
Welsh Water today announces solid operational and financial results for the half-year ending 30 September 2008, despite significant
increases in power costs and bad debt charges. Notwithstanding the challenging economic environment, the financial position of the company
has continued to strengthen, with gearing having been further reduced to 71% at the end of the period (2007: 73%). The business also has a
strong liquidity position with funding in place for at least the remainder of the current five year regulatory investment period to 2010.
Welsh Water is owned by Glas Cymru, which is unique amongst UK utility companies in that it has no shareholders and it reinvests all its
financial surpluses for the benefit of Welsh Water's customers. This year, the company has paid a 'customer dividend' of �21 per customer,
at a total cost of �27 million. This brings to over �120 million the total value of 'customer dividends' returned by Welsh Water to its
customers since it was acquired by Glas Cymru seven years ago.
Welsh Water's strong financial position means that it has been able to maintain its very substantial capital expenditure programme, with
investment during the six months at a record level, delivering a wide range of projects to improve customer service, environmental
performance and drinking water quality.
Highlights for the half-year include:
* 'Customer dividend' for 2008-09 is �21 for customers receiving both water and sewerage services (2007: �20 per customer)
* Capital investment of �168 million (2007: �131 million) - a record level which will benefit customer service, environmental
performance and drinking water quality
* Further good progress in reducing leakage, on course to hit the Ofwat leakage target for the eleventh year in a row
* Robust financial position, with gearing reduced to 71% (2007: 73%) - as against 93% when Welsh Water was acquired by Glas Cymru in
May 2001
Glas Cymru Chairman Lord Burns said, "Over the past six months, Welsh Water has seen significant increases in its costs, notably higher
power costs and provisions for bad debts. Despite this challenging economic environment, the company has continued to strengthen its
financial position, leaving us well placed to deal with the impact of the expected difficult times ahead. Customers can be confident that
they will continue to see the benefits of our unique business model - receiving a 'customer dividend' which has steadily risen to reach �21
this year. We will also be able to maintain the delivery of our largest ever capital investment programme, with nearly �1 billion invested
since April 2005, resulting in major and sustained improvements to customer service, drinking water quality and the environment."
The results in detail:
Financial results and customer benefits:
* 'customer dividend' this year of �21 per customer at a total cost of �27 million (2007: �20 per customer, costing �26 million).
The 'customer dividend' has increased steadily since it was first introduced in 2003 at �9 per customer
* profit before taxation (but excluding the fair value movements on financial instruments) was less than �1 million (2007: �13
million), largely due to increased operating costs
* operating costs of �133 million (2007: �114 million), an increase in real terms of �13 million, mainly due to increased power
costs of �7 million and an increased provision for bad debts of �3 million
Robust financial position:
* net debt has reduced to 71% of Regulatory Capital Value (RCV) (2007: 73%)
* a strong liquidity position, with �485 million of cash and secure bank facilities as at 30 September 2008, and a further �100
million loan agreement signed in October with the European Investment Bank to finance essential water and wastewater investment schemes
throughout Wales in the period to 2010
* strong credit ratings, with the senior bonds being rated A by Standard and Poor's and Fitch Ratings, and A3 by Moody's
Operational performance
* customers at the highest level of risk of suffering from internal sewer flooding as a result of overloaded sewers reduced to 315
properties (2007: 438 properties)
* category 1 and 2 pollution incidents reduced to 2 (2007: 7 incidents)
* best ever compliance with the standards for iron in water at 99.5% - a result of 3,500 km of unlined iron water mains being
replaced or renewed since April 2000
* in the 2008 summer season, Wales had 47 Blue Flag beaches and marinas (2007: 49 Blue Flags), around a third of the UK total
* on target to achieve the leakage reduction target set by Ofwat for 2008/09 - with 50 leaks and bursts being repaired every day
* continuing high customer satisfaction, as measured by independent tracking research.
Major capital investment programme:
* capital investment of �168 million (2007: �131 million) benefiting customer service, environmental quality and drinking water
quality
* total investment over the AMP4 period (2005 to 2010) forecast to be �1,400 million (equivalent to over �1,000 of investment for
every customer served)
* total capital investment since April 2005 of �976 million (70% of the expected AMP4 total).
Notes for Editors:
1. Glas Cymru was formed in April 2000 for the sole purpose of acquiring Welsh Water. It is a *company limited by guarantee* registered
under the Companies Act 1985. Glas Cymru has no shareholders. Instead, Members carry out an important corporate governance role but they do
not receive dividends nor do they have any other financial interest in the Company. This corporate structure ensures that all financial
surpluses generated are retained and reinvested for the benefit of Welsh Water and its customers.
2. Glas Cymru*s constitution strictly limits its purpose to that of financing water assets in Welsh Water*s area of appointment and
managing Welsh Water*s business so that high quality water and sewerage services are delivered at least cost to the communities served by
Welsh Water. Glas Cymru cannot diversify into other unrelated commercial activities.
3. Welsh Water outsources the provision of operational and customer services and the delivery of its investment programme. By working
closely in a partnership framework with industry specialists, we aim to deliver improving business performance and customer benefits.
4. On 29 August 2008, we issued a precautionary boil water notice to customers supplied by our Mynydd Llandygai water treatment works,
following the identification through routine sampling of an increased level of cryptosporidium. To the best of our knowledge, no customer
fell ill as a result of this incident. We successfully installed ultra violet (UV) treatment at the works and so were able to lift the
notice on 18 September.
5. On Ofwat's annual "Overall Performance Assessment", which captures performance on a basket of measures covering water quality,
environmental protection and customer service, we have achieved in 2007-08 a similar result to the previous year at 394 points, equivalent
to 89% of the maximum score available. This placed Welsh Water fifth in the industry league table (2006-07: fourth). Improved performance on
reducing the number of sewer flooding and serious pollution incidents was offset by lower performance on compliance with water quality
measures as well as the loss of supply suffered by 3,425 customers following the flooding of our Whitbourne water treatment works in August
2007.
6. Consistent, independent research of customer opinion carried out by Beaufort Research shows that customer satisfaction with the
service provided by Welsh Water remains stable at very high levels * with nearly 80% of customers being either *satisfied* or *very
satisfied*. Customers rate the value for money provided by Welsh Water as being above that provided by other utility companies in Wales
covered by the survey.
Ends
For further information, contact the Welsh Water press office on 02920 556140.
glas
Interim report and accounts
for the six months ended 30 September 2008
Chairman's Statement
Financial results
In the face of a challenging economic environment, I am pleased to report a solid financial performance over the past six months and a
strong financial position as at 30 September 2008. Our financial position has continued to strengthen, with leverage (as measured by net
debt to regulatory capital value) further reduced to 71%, down from 93% on the acquisition of Welsh Water in May 2001. As at 30 September
2008, available funding included cash deposits of �140 million and committed bank facilities totalling �345 million, and on 23 October 2008
we signed a �100 million loan agreement with the European Investment Bank. This gives a balance of funding currently available of �585
million, meaning that we are securely financed until after 2010 and sheltered from the recent instability in financial markets. We remain on
course with our unique customer dividends, which were increased to �21 per customer this year at a total cost of some �27 million.
We have not escaped the impact of the slowdown in economic activity, however, and an increased bad debt charge together with sharply
increased power costs produced a break-even result (after interest but before fair value adjustments on financial instruments), down from a
profit of �13 million last year. During the six months, we have invested �168 million (2007: �131 million) into Welsh Water's �1.3 billion
AMP4 capital programme to improve customer service, environmental quality and drinking water quality, bringing overall expenditure since
2005 to �976 million.
Over the coming months, we expect the economic downturn will further impact on our customers and the financial performance of the
company. However, our strong financial position means that we are well placed to deal with the impact of the expected difficult times ahead
and to continue to deliver benefits to our customers through our 'customer dividend' policy and ongoing investment programme.
Operational performance
On 22 October 2008, Ofwat published its Annual Report on Levels of Service for the Water Industry in England and Wales for the year
ended 31 March 2008. On Ofwat's "Overall Performance Assessment" Welsh Water scored 394 out of a maximum of 438, a slight improvement on the
previous year's score of 392. Compared to other water and sewerage companies, Welsh Water was ranked fifth, slipping from its fourth
position the year before.
Our service performance has been generally good during the year to date; in particular, water quality compliance as defined by Ofwats's
key measure, the Operational Performance Index, has improved from 99.6% to 99.9%. It is also pleasing to report that we have achieved a
marked reduction in serious pollution incidents, a measure on which we have previously lagged behind the rest of the industry. Coastal areas
continue to benefit from high quality bathing water, with Wales awarded 47 Blue Flags in 2008, around a third of the total awarded to the
UK. We have responded well to the very significant challenges caused by increasingly erratic weather patterns during the year to date.
However, of a total of 134 flooding incidents resulting from high levels of rainfall causing hydraulic overload of our sewers, 51 were
caused by rain we might expect to see from frequent, 1 in 10 year storms, an increase from 33 for the first half of the previous year.
Occurrences of sewage flooding due to blockages and other causes also rose, from 81 to 112. To improve proactive management of the sewer network we have now completed the installation of over 600 Hawkeye
devices, forming a telemetry system which allows us to monitor sewer flows remotely. By responding more quickly, we have already seen fewer
pollution incidents and are confident that this technology will help us to reduce the number of sewer flooding incidents.
Green Space Wales is an initiative launched in October 2008 to promote natural drainage to help the sewerage network cope better with
climate change and increasing urbanisation to reduce incidents of sewer flooding. We are linking with central and local government,
planners, developers and other decision makers to support legislative change and the adoption of sustainable drainage solutions for new
developments. We have taken a UK water industry lead by commissioning large-scale studies in Wales as part of our Surface Water Management
Strategy, which will provide a long term vision as to how Welsh Water will deal with surface water flows for the next 25 years.
On 29 August 2008 we issued a Boil Water Notice to 45,000 customers supplied with tap water from our Mynydd Llandygai water treatment
works in Snowdonia. We cannot take any risks with public health, and this was a precautionary measure following an increase in
cryptosporidium found in our routine water sampling. We installed ultra violet (UV) treatment equipment and were able to lift the Boil Water
Notice on 18 September. No-one was made ill by the water during the incident and we appreciate the support of our customers during this
time; we know that being asked to boil water for routine use is disruptive to daily life. Over the last few years we have seen a gradual
reduction in the quality of some of our pristine upland water sources, which means that the existing treatment facilities may no longer be
sufficient to ensure the production of safe drinking water. In addition to the investment already planned, in 2008 we initiated and have now
accelerated a new �150 million investment programme to improve the reliability of drinking water quality throughout Wales, in particular by reducing the risk posed by cryptosporidium. Pending completion
of this programme, we are installing UV treatment at a further 13 sites, mostly in North Wales; this will cost �5 million and add some
�650,000 to our annual power costs.
Chairman's Statement cont'd
Looking further ahead
We are a long term business and are responsible for providing an essential public service to more than 3 million people. Few things are
more important for public health than safe drinking water and reliable sanitation. Many of the decisions we make today will impact our
customers, our economy and our environment for many years to come. We set out our long term objectives for the water industry in Wales in
"Welsh Water: Our Sustainable Future" which was published in November 2007.
On 11 August 2008, we submitted our Draft Business Plan to Ofwat, the first step in the 5-yearly review that will determine standards,
investment expenditure and customer bills for the period 2010-2015. We are proposing no real increase in average household bills after 2010
- the average bill for drinking water and sewerage will stay at around �376 per household (at the price base used for the regulatory price
review), or just over �1 a day. We are also proposing a capital investment programme of �1.5 billion - equivalent to more than �1,000 per
household - continuing our current level of expenditure. The investment programme will deliver very significant benefits for Welsh Water's
customers, our economy and our environment. Over the coming months, our Draft Business Plan will be subject to detailed scrutiny and
challenge by Ofwat, the Welsh Assembly Government, and other regulators and stakeholders. We will also have to take into account a number of
possible risks, including the very uncertain economic environment which may have an adverse impact on our Final Business Plan, which will be published in April 2009.
The water industry is on the 'front line' when it comes to dealing with the possible impact of climate change and the resulting changes
in weather patterns. Dealing with increasing frequency of extreme storms along with the greater likelihood of droughts will present
significant challenges for us. A substantial number of our customers genuinely struggle to afford their water bill and ensuring that the
public service we provide remains affordable is especially important; that means prioritising investment to achieve outcomes that are valued
by our customers and to deliver a sustainable long term water industry in Wales. Key to achieving this, especially in the current very
difficult economic climate, is continuing to demonstrate to our investors that Welsh Water is a 'safe home' for long term investment. As a
company that owns Welsh Water on behalf of its customers, we believe we are well placed to meet the challenges ahead.
Lord Burns
Chairman - Glas Cymru Cyfyngedig
12 November 2008
Review of the business
Financial results
Financial performance
Glas Cymru's financial results cover the six months to 30 September 2008. Comparative figures are given for the six months to 30
September 2007 and the year ended 31 March 2008.
Turnover in the six months to 30 September 2008 was �328 million, as compared to �307 million in the six months to 30 September 2007.
The increase reflects the RPI+K increase in prices of 7.5% allowed by Ofwat, less the 'customer dividend' for the year. Welsh Water is the
only water company to give such an annual 'customer dividend', which for 2008-09 has increased to �21 per customer (2007: �20 per customer)
at a total cost this year of �27 million (2007: �26 million).
Customer debt recovery performance deteriorated slightly during the period, a reflection of the impact the economic slowdown is
beginning to have on customers. Welsh Water and its service partner Veolia have taken steps to ensure that the monitoring and recovery of
customer debt are maintained at the highest possible levels, but accept that the likely recession in Wales and England will impact on
collection rates; in recognition of this, there has been an increased in the provision for bad debts.
Operating costs (excluding depreciation and infrastructure renewals expenditure) increased to �133 million (2007: �114 million): the
major increases result from inflation (�6 million), power cost rises (�7 million) and additional bad and doubtful debt charges (�3
million).
Net interest payable in the period (excluding fair value movements) was �81 million (2007: �77 million), including an indexation charge
on index linked debt of �15 million (2007: �12 million). The increase in net interest payable reflects the �71 million increase in net debt
since last year and the impact of higher inflation on the indexation charge on RPI-linked debt.
Profit before taxation (but before the fair value movements on financial instruments) was �0.4 million, down on last year's profit of
�13 million, primarily reflecting the increases in operating expenditure. After allowing for the movement in the fair value of financial
instruments, the total loss before tax was �71 million (2007: profit of �16 million). There was a taxation charge for the period of �13
million (2007: credit of �20 million), comprised entirely of deferred tax.
Capital investment in the six month period (including infrastructure renewals expenditure) of �168 million before grants and
contributions (2007: �131 million) will bring improvements to customer service, environmental quality and drinking water quality. Overall
expenditure since 2005 totals �976 million, which is broadly in-line with Welsh Water's �1.4 billion AMP4 capital investment programme.
Financial position
Our financial position strengthened further over the first half of the year with gearing (net debt/regulatory capital value) at 30
September 2008 of 71% (2007: 73%); this compares to some 93% on the acquisition of Welsh Water in May 2001.
The company is partly sheltered from the recent turmoil in credit markets and its bonds continue to trade well relative to those of
similar companies. Credit rating agency Moody's has maintained its 'A3' corporate family rating for Welsh Water's bonds, reflecting the
quality of the company's creditworthiness. Welsh Water's Class A bonds are guaranteed by MBIA and therefore reflect the ratings assigned to
MBIA by the rating agencies.
As at 30 September 2008, Glas Cymru had cash, short-term deposits and undrawn syndicated bank facilities of �485 million, giving the
company a high level of financial liquidity. On 23 October 2008, a �100 million loan agreement was signed with the European Investment Bank
to secure funding for essential water and wastewater improvement schemes throughout Wales to 2010.
Review of the business cont'd
Customer service, water quality and environmental quality
The results for the first six months of this year show that service performance continues to be of a high overall standard. Key measures
include:
Levels of service
� Unplanned water supply interruptions have decreased significantly, as the 2007 data was impacted by flooding at the Whitbourne
water treatment works in September 2007;
� Fewer properties *at risk* of sewage flooding following investment to minimize the risk of such occurrences, however actual
sewage flooding incidents have risen; and
� Independent research confirms continuing high customer satisfaction with the overall service provided by Welsh Water.
Water quality
� Maintained best ever compliance (99.5%) with the standards for iron in water * a result of more than 1,500km of water mains being
replaced or renewed since April 2005 * improved chemical quality at customers* taps as measured by the Operational Performance Index, and
improved bacteriological compliance *at the tap*; and
� Developed Drinking Water Safety Plans for all 80 water treatment works.
Environment
� Good progress made to reduce leakage (from 7.3 to 7.1 m�/km/day) and we are currently on course to meet the target for 2008/09;
� A reduction in the number of both serious pollution incidents (Categories 1 and 2) and less severe incidents (Category 3);
� Green Space Wales initiative launched, linking with government and other decision makers, to reduce incidents of sewer flooding
and environmental pollution by reducing the flow of surface water in the sewerage network;
� In 2008, 47 beaches and marinas in Wales were awarded Blue Flags (around a third of the UK total) and 46 beaches were given Green
Coast Awards; and
� Achieved over 99.9% waste water treatment works compliance during the six months.
Unpredictable weather patterns have created significant operational challenges for both water and sewerage services, with heavy rainfall
leading to incidences of sewage flooding and the localised degradation of raw water quality. Maintaining a high level of performance is an
ongoing challenge and the company is focused on achieving further improvements. A telemetry system is now in place allowing monitoring of
sewer levels and storm overflow discharges, and a �150 million investment programme is already underway to further improve the robustness of
drinking water quality throughout Wales. Our good performance over the past seven years reflects a sustained commitment to improving
services for customers, but our aim is perform consistently within the top quartile of the sector.
Health and safety
� There has been an increase in reportable accidents, from 14 to 19 in the six months. In spite of this, the total number of
dangerous occurrences and reportable diseases has reduced from 3 to nil during the same period; and
� Working time lost due to accidents has fallen by 15% compared to the same period last year.
Capital investment programme
Welsh Water*s �1.4 billion AMP4 capital investment programme aims to deliver improvements to drinking water quality, environmental
protection and the alleviation of sewer flooding. Significant outputs achieved so far include:
� 1,505kms of water mains replaced or refurbished;
� 263 sewer overflows improved and risk of repeat sewer flooding reduced for 684 properties;
� 5 water treatment works schemes to improve drinking water quality will be complete by the end of the year;
� Improvement to sewage treatment at 89 waste water treatment works and the completion of Holyhead waste water treatment works;
� Good progress in the delivery of our ITEC programme to improve customer service and operational efficiency;
� Increased spend on the maintenance of our water and sewerage assets; and
� Completion of 7 Section 101a first time sewerage schemes.
Summary of key measures of service performance
Period to Period to
30 September 2008 30 September 2007
Levels of Service
Properties 'at risk' of receiving low 1,0471 404
pressure
Unplanned water supply interruptions 772 6,9992
Properties 'at risk' of sewage flooding 315 438
Sewage flooding incidents - hydraulic 51 33
overload ("1 in 10 year storms")
Sewage flooding incidents - other causes 112 81
Billing enquiries answered within 5 days 99.9% 99.9%
Written complaints answered within 10 99.2% 99.4%
days
Customer meters read within year 93.1% 97.3%
Water Quality
Bacteriological compliance 'at the tap'3 99.7% 99.6%
Iron compliance 'at the tap'3 99.5% 99.5%
Operational Performance Index3 99.9% 99.6%
Environment
Leakage (m�/km/day) 7.1 7.3
Number of 'Category 1 and 2' pollution 3 8
incidents3
Number of 'Category 3' pollution 181 218
incidents3
Customers served by compliant wastewater 99.9% 99.9%
treatment works3
Wastewater treatment works complying with 99.8% 99.1%
consents
Sewage sludge recycled satisfactorily 100% 100%
1 The higher number this year is the result of the routine review of logging program data; end of year performance will be similar to
2008/09.
2 In July 2007, 6,850 unplanned water supply interruptions resulted from flooding at the Whitbourne water treatment works in
Herefordshire. Due to the exceptional weather the works was flooded and shut down for more than 48 hours.
3 Calendar year to end of September.
Condensed consolidated income statement
Six months ended Six months ended Year ended
30 September 30 September 31 March
2008 2007 2008
Note �m �m �m
Revenue 2 327.9 307.3 622.9
Operating costs
- Operational expenditure (133.0) (113.8) (230.8)
- Infrastructure renewals (47.7) (43.0) (97.5)
expenditure
- Depreciation and (65.9) (60.9) (122.3)
amortisation
(Loss)/profit on disposal of (0.1) 0.7 0.8
fixed assets
Operating profit 81.2 90.3 173.1
Financing costs
- Interest payable and 3a (86.3) (81.3) (171.5)
similar charges
- Interest receivable 3a 5.5 4.3 12.2
- Fair value (losses)/gains 3b (71.0) 2.3 (47.9)
on financial instruments
(151.8) (74.7) (207.2)
(Loss)/profit before taxation (70.6) 15.6 (34.1)
Taxation (charge)/credit 4 (12.7) 19.9 38.3
(Loss)/profit after taxation (83.3) 35.5 4.2
Profit before tax excluding fair value 0.4 13.3 13.8
(losses)/gains on financial instruments
Impact of fair value (losses)/gains on financial (71.0) 2.3 (47.9)
instruments
(Loss)/profit before taxation (70.6) 15.6 (34.1)
The group has no other recognised gains or losses and, accordingly, a statement of recognised income and expense has not been
presented.
See Note 1 for the basis of preparation.
Condensed consolidated balance sheet
At At At
30 September 30 September 31 March
2008 2007 2008
Note �m �m �m
Assets
Non-current assets
Property, plant and equipment 6 2,929.3 2,858.6 2,893.4
Intangible assets 5 33.3 11.5 25.1
Financial assets:
- Derivative financial - 12.6 2.5
instruments
Retirement benefit asset - - 2.0
2,962.6 2,882.7 2,923.0
Current assets
Trade and other receivables 7 125.3 119.4 118.3
Financial assets:
- Held to maturity - 0.6 -
investments
- Derivative financial 6.4 3.0 6.9
instruments
Cash and cash equivalents 139.9 108.4 124.1
271.6 231.4 249.3
Liabilities
Current liabilities
Trade and other payables 8 (135.9) (107.0) (123.9)
Financial liabilities:
- Borrowings (57.4) (69.3) (25.1)
- Derivative financial (6.8) (0.8) (3.3)
instruments
(200.1) (177.1) (152.3)
Net current assets 71.5 54.3 97.0
Non-current liabilities
Trade and other payables 8 (2.2) (2.5) (2.3)
Financial liabilities:
- borrowings (2,644.1) (2,530.3) (2,623.4)
- derivative financial (141.9) (35.9) (77.4)
instruments
Retirement benefit obligation - (1.5) -
Provisions (8.1) (8.7) (8.5)
(2,796.3) (2,578.9) (2,711.6)
Net assets before deferred tax 237.8 358.1 308.4
Deferred tax (362.8) (368.5) (350.1)
Net liabilities (125.0) (10.4) (41.7)
Reserves
Retained deficit (125.0) (10.4) (41.7)
Total reserves 10 (125.0) (10.4) (41.7)
Condensed consolidated cash flow statement
Six months ended Six months ended Year ended
30 September 30 September 31 March
2008 2007 2008
�m �m �m
Operating profit 81.2 90.3 173.1
Adjustments for:
Depreciation and amortisation 65.9 60.9 122.3
(Loss)/profit on disposal of 0.1 (0.7) (0.8)
fixed assets
Changes in working capital:
Increase in trade and other (8.7) (27.7) (24.3)
receivables
Increase/(decrease) in trade 17.9 (0.1) 6.1
and other payables
Decrease/(increase) in 2.0 (4.0) (7.5)
retirement benefit asset
(Decrease)/increase in (0.4) 0.1 (0.1)
provisions
10.8 (31.7) (25.8)
Cash generated from operations 158.0 118.8 268.8
Interest received 5.7 5.0 11.0
Interest paid (28.4) (105.3) (212.3)
Net cash inflow from operating 135.3 18.5 67.5
activities
Cash flows from investing
activities:
Purchase of property, plant (125.2) (86.8) (190.9)
and equipment
Grants and contributions 8.2 11.6 17.7
received
(Net costs of)/proceeds from (0.1) 0.7 0.8
sale of property, plant and
equipment
Net cash used in investing (117.1) (74.5) (172.4)
activities
Net cash inflow/(outflow) 18.2 (56.0) (104.9)
before financing activities
Cash flows from financing
activities:
Long term loans and finance - - 85.0
leases received
Revolving credit facility and (2.2) (2.2) (4.4)
term loan repayments
Capital element of finance - - (9.3)
lease payments
Reduction in financial assets - (0.6) -
Other loan repayments (0.2) - (0.3)
Net cash (used)/generated from (2.4) (2.8) 71.0
financing activities
Increase/(decrease) in net 15.8 (58.8) (33.9)
cash
Net cash at start of period 124.1 158.0 158.0
Net cash at end of period 139.9 99.2 124.1
Notes to the condensed consolidated financial statements
1. Basis of preparation
The interim report and accounts are for the six months ended 30 September 2008; they have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, 'Interim financial reporting' as adopted by the
European Union, using accounting policies consistent with International Financial Reporting Standards (IFRSs). The interim report and
accounts should be read in conjunction with the annual financial statements for the year ended 31 March 2008, which have been prepared in
accordance with IFRSs as adopted by the European Union. The accounting policies and methods of computation applied in these interim
financial statements are the same as those applied in the annual financial statements for the year ended 31 March 2008.
These financial statements are unaudited but have been formally reviewed by the auditors and their report is set out on page 12. The
interim financial results do not comprise statutory accounts within the meaning of Section 240 of the Companies Act 1985. The results shown
for the year ended 31 March 2008 have been derived from the group's audited full financial statements filed with the Registrar of Companies.
The report of the auditors on those accounts was unqualified and did not contain a statement under Section 237(2) or 237(3) of the Companies
Act 1985.
The company is limited by guarantee and does not have any share capital. In the event of the company being wound up, the liability of
its members is limited to �1 each.
2. Segmental information
All reported revenue and operating profits arise from the operation of water and sewerage business in the United Kingdom. Revenue
recognised reflects the actual charges levied on customers in the period; the difference between the actual revenue and the level of revenue
that could have resulted had the full Ofwat allowed level of charges been levied is referred to as a 'customer dividend'.
3. Financing cost and fair value of derivative financial instruments
Six months ended Six months ended Year ended
(a) Net interest before fair 30 September 2008 30 September 2007 31 March
value (losses)/gains on 2008
financial
instruments
�m �m �m
Interest payable on bonds (40.9) (40.2) (83.9)
Indexation on index-linked (14.8) (12.4) (30.4)
bonds
Interest payable on finance (23.1) (21.8) (45.7)
leases
Interest payable on other (4.1) (3.9) (8.3)
loans
Other interest payable and (3.1) (2.7) (2.5)
finance costs
Amortisation of bond issue (0.3) (0.3) (0.7)
costs
Total interest payable (86.3) (81.3) (171.5)
Interest receivable 5.5 4.3 12.2
Net interest payable before (80.8) (77.0) (159.3)
fair value adjustments
Six months ended Six months ended Year ended
30 September 30 September 31 March
(b) Fair value (losses)/gains 2008 2007 2008
on financial instruments
�m �m �m
Fair value (losses)/gains (4.9) 6.5 (4.0)
on interest rate swaps
Fair value losses on index (66.1) (4.2) (43.9)
linked swaps
Total fair value (71.0) 2.3 (47.9)
(losses)/gains on financial
instruments
Deferred tax effect at 28% 19.9 (0.7) 13.4
of fair value (losses)/gains
Fair value (losses)/gains (51.1) 1.6 (34.5)
net of tax impact
Whilst the group employs an economically effective policy using interest rate and index-linked swaps, the hedge accounting criteria of
IAS 39 are not satisfied. Consequently, the group's interest rate and index-linked swaps are fair valued at each balance sheet date with the
movement (net loss or gain) disclosed in the income statement. Over the life of these swaps, if held to maturity, these fair value
adjustments will reverse and reduce to zero.
The notional value of the interest rate swaps are �192m (2007: �192m) and the index linked swaps are �751m (2007: �679m). During the
period to 30 September 2007 �433 million (notional value) of surplus interest rate swaps were terminated at a cost of �32.5 million.
Notes to the condensed consolidated financial statements cont'd
4 Taxation
30 September 2008 30 September 2007 31 March
2008
Tax on (loss)/profit �m �m �m
comprises:
Corporation tax - - -
Deferred tax
Adjustment in respect of 2.2 - -
prior period
Credit/(charge) at 28% 19.5 (6.0) 12.6
Effect of rate change - 25.9 25.7
Effect of IBA abolition (see (34.4) - -
below)
(12.7) 19.9 38.3
Taxation (charge)/credit (12.7) 19.9 38.3
The company does not expect to pay corporation tax on its trading profits for the current year due to the availability of capital
allowances on its investment programme.
The deferred tax charge for the six months reflects an increase in the deferred tax provision on the abolition of the Industrial
Buildings Allowance (IBA), following enactment of the Finance Act 2008.
5. Intangible fixed assets
Intangible fixed assets comprise computer software and related system developments.
Amortisation Net book value
Cost
�m �m �m
At 1 April 2008 76.7 (51.6) 25.1
Additions 9.9 (1.7) 8.2
At 30 September 2008 86.6 (53.3) 33.3
6. Property, plant and equipment
Freehold land & Infrastructure Operational Plant equipment, computer hardware
Total
buildings assets structures
�m �m �m �m
�m
Cost
At 1 April 2008 33.0 1,457.4 2,232.5 222.9
3,945.8
Additions net of grants and - 28.3 65.4 6.4
100.1
contributions
At 30 September 2008 33.0 1,485.7 2,297.9 229.3
4,045.9
Accumulated depreciation
At 1 April 2008 16.3 98.8 772.9 164.4
1,052.4
Charge for the period 0.2 16.1 43.0 4.9
64.2
At 30 September 2008 16.5 114.9 815.9 169.3
1,117.3
Net book value
At 30 September 2008 16.5 1,370.8 1,482.0 60.0
2,929.3
At 31 March 2008 16.7 1,358.6 1,459.6 58.5
2,893.4
Notes to the condensed consolidated financial statements cont'd
7. Trade and other receivables
30 September 2008 30 September 2007 31 March
2008
�m �m �m
Amounts falling due within
one year:
Trade receivables 120.1 104.4 101.0
Less provision for (66.1) (56.7) (58.8)
impairment of receivables
Trade receivables - net 54.0 47.7 42.2
Prepayments and accrued 63.8 65.9 62.9
income
Other receivables 7.5 5.8 13.2
125.3 119.4 118.3
8. Trade and other payables
30 September 30 September 31 March
2008 2007 2008
Current �m �m �m
Trade payables 36.9 14.8 16.1
Capital payables 49.4 43.8 55.6
Other taxation and social security 0.4 0.3 0.4
Accruals and deferred income 49.2 48.1 51.8
135.9 107.0 123.9
Non-current
Deferred income 2.2 2.5 2.3
9. Analysis and reconciliation of net debt
(a) Net debt at the balance 30 September 2008 30 September 2007 31 March
sheet date may be analysed as: 2008
�m �m �m
Bank overdraft - (9.2) -
Cash and cash equivalents 139.9 108.4 124.1
Financial assets - 0.6 -
139.9 99.8 124.1
Debt due after one year (1,776.9) (1,749.6) (1,764.8)
Debt due within one year (4.7) (4.7) (4.7)
Finance leases (842.5) (766.8) (842.5)
Accrued interest (82.7) (75.3) (42.1)
Unamortised bond issue 5.3 6.0 5.6
costs
(2,701.5) (2,590.4) (2,648.5)
Net debt (2,561.6) (2,490.6) (2,524.4)
Notes to the condensed consolidated financial statements cont'd
9. Analysis and reconciliation of net debt (continued)
(b) The movement in net debt 30 September 2008 30 September 2007 31 March
during the period may be 2008
summarised as:
�m �m �m
Net debt at start period (2,524.4) (2,427.8) (2,427.8)
Increase/(decrease) in net 15.8 (58.8) (33.9)
cash
Increase in financial assets - 0.6 -
Decrease/(increase) in debt 2.4 2.2 (71.0)
Decrease/(increase) in net 18.2 (56.0) (104.9)
debt arising from cashflows
Movement in accrued (40.6) 5.7 38.9
interest
Other non-cash movements - (0.1) (0.2)
Indexation of index-linked (14.8) (12.4) (30.4)
debt
Movement in net debt during (37.2) (62.8) (96.6)
the period
Net debt at end of period (2,561.6) (2,490.6) (2,524.4)
10. Consolidated statement of changes in reserves
30 September 2008 30 September 2007 31 March
2008
�m �m �m
Reserves brought forward (41.7) (45.9) (45.9)
(Loss)/profit for the (83.3) 35.5 4.2
period
Reserves carried forward (125.0) (10.4) (41.7)
Independent review report to Glas Cymru Cyfyngedig
Introduction
We have been engaged by the company to review the condensed set of financial statements in the interim report and accounts for the six
months ended 30 September 2008, which comprises the consolidated income statement, consolidated balance sheet, statement of changes in
reserves, consolidated cash flow statement and related notes. We have read the other information contained in the interim report and
accounts and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set
of financial statements.
Directors' responsibilities
The interim report and accounts is the responsibility of, and has been approved by, the directors. The directors are responsible for
preparing the interim report and accounts in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial
Services Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in the interim report and accounts has been prepared in accordance with
International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the interim report and
accounts based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the
Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept
or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United
Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the
interim report and accounts for the six months ended 30 September 2008 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
PricewaterhouseCoopers LLP
Chartered Accountants
12 November 2008
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR QFLFFVFBXFBK
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