8 minute read
Our Financial Performance and Resources
Natalie Passmore Finance Director
Key Results
Turnover
Operating profit Profit for the reporting year Capital expenditure 2021 2022 Target 2022
£18,356k £18,792k £18,223k £7,446k £5,950k £2,371k £5,976k £5,903k £1,561k £3,051k £10,820k £5,653k
Profit for 2022 totalled £5,903k (2021: £5,976k), higher than expected but slightly lower than 2021.
The increase on target was driven by the combination of increased consumption through the summer months, a fair value gain on derivative financial instruments of £1,364k, and a net curtailment gain of £2,656k resulting from the closure of the pension scheme. The prior year operating profit of £7,446k includes profit on the sale of two properties. Removing the impact of these one-off transactions in both 2021 and 2022, then, like-for-like results show a slight increase on 2021 of £69k.
2021 2022
Profit before tax £6,691k £6,765k Less: Profit on disposal of property Fair value gain on derivative financial instrument £(4,015k) –
– (£1,364k)
Net curtailment gain on defined benefit pension scheme – (£2,656k)
Underlying profit before tax £2,676k £2,745k
Turnover
Turnover for the year was £18,792k (2021: £18,356k). The increase was £569k more than target and an increase of 2.4% or £436k on last year. The increase in turnover on prior year was a result of the following factors: • Higher water revenue of £414k taking overall water revenue to £17,671k (2021: £17,257k). This increase is attributable to a combination of a 3.5% tariff increase (effective 1 January 2022), approximately 250 new customers added to the network, and higher than expected water consumption – particularly commercial consumption in the second half of the year, driven by the long, hot summer. Prior to the summer, water consumption was lower than in the previous year, particularly for household customers which is likely to be driven by a return to pre-pandemic consumption patterns e.g. less working from home. This trend reversed over
July and August before decreasing with the introduction of the temporary use ban and Save Water campaign at the end of August.
• A 15% (£83k) increase in revenue relating to the installation of new water mains and connections.
Pension Scheme Curtailment
The defined benefit scheme was closed to future accrual from 1 January 2022. This closure meant that the Company had greater certainty over its future liabilities and eliminated the requirement to accrue defined benefits for future service costs. As a result, the Company was able to recognise a one-off net curtailment benefit of £2,656k in the income statement.
Operating Expenditure
Operating expenditure of £15,458k was higher than anticipated and the prior year of £14,938k. This increase was driven by the following key variances: • Inflation impacting many areas of expenditure, in particular chemical, energy and contractor expenditure. • The write-off of costs associated with redeveloping the Millbrook site following a revision of our property strategy due to the purchase of our new site at Rue des Pres. • Costs associated with new office site and temporary accommodation following the move from Mulcaster
House. • Increased insurance premiums resulting from higher replacement cost of critical assets (construction cost inflation and revaluation of potential work required). • Costs related to running the desalination plant (principally electricity) and the accompanying Save
Water campaign from August onwards.
Operating Profit
Operating profits totalled £5,950k compared to £7,446k in the prior year. The main reason for the variance is the sale of properties in 2021 which generated a profit on disposal of £4,015k and the net curtailment gain of £2,656k in 2022. Removing the impact of these exceptional items, underlying operating profit was £3,294k, £137k below 2021.
Net Finance Income
Net finance income was £1,196k compared to an expense of £374k in the prior year. This was driven by the fair value gains on the derivative financial instrument.
Profit before Taxation
Profit before taxation for the year was £6,765k, which is £74k or 1.1% higher than in 2021. Profit in both years was affected by exceptional items: profit on disposal of fixed assets in 2021, and the gains on the financial instrument and the pension curtailment in 2022.
Income Tax
Income tax charged in the period has increased by £147k on the prior period to £862k, primarily due the difference in tax treatment of property disposals, the net gain on curtailment and the derivative financial instrument.
Earnings per Share
Earnings per share for 2022 was £0.61 for each ordinary share, a decrease of £0.01 on 30 September 2021. 73.91% of the ordinary share capital of the Company is owned by the States of Jersey (representing 83.33% of voting rights), with the remaining 26.09% held by approximately 165 private and institutional investors.
Transactions with the States of Jersey
The total cash paid to the States of Jersey by Jersey Water during the year, including dividends, was £5,163k (2021: £4,778k).
£715
Income tax
£661
GST
£1,177
Employment taxes (ITIS and Social Security)
£1,932
Dividends (paid to the States of Jersey)
£293
Rates and licenses
£862
Income tax
£798
GST
£1,228
Employment taxes (ITIS and Social Security)
£1,971
Dividends (paid to the States of Jersey)
£304
Rates and licenses
3p Paying back interest:
On money borrowed to improve services and invest in infrastructure (loan interest and preference share dividends)
Each pound of our customers’ bills is spent as follows:
12p Paying taxes, rates and licences:
Income tax on profits, GST paid, employer’s social security, rates and licences
12p Our shareholders:
Dividends paid to all ordinary shareholders
28p Our people:
Wages, salaries, pensions and other benefits
19p Building new assets:
Such as connecting new homes, upgrading the desalination plant and treatment works and replacing the mains network
9p Maintaining our equipment:
To ensure plant and equipment works efficiently
5p Energy:
To cover day-to-day running of our operations
12p Our suppliers:
Costs of suppliers' services
Note: The above chart excludes profit generated from curtailment of the defined benefit scheme and the gain on the derivative financial instrument
Dividends declared and paid
Previous year - Final dividend Current year - Interim dividend
Dividends proposed
Current year - Final dividend
Equity Dividends and Dividend Policy
Our Board aims to deliver real growth in dividends over time, recognising that short term adjustments may be necessary to allow for variations in financial performance, investment requirements, liquidity and other factors.
In determining the level of dividend in any year, in accordance with the policy, our Board considers several other factors that influence the proposed dividend payment, which include but are not limited to:
• Operational and financial performance of the business • The level of dividend cover • Available financial resources and distributable reserves • Future cash commitments and investment requirements to sustain delivery of our strategic outcomes • Any relevant external issues that may impact overall resilience.
For 2022, we are recommending a final dividend on the Ordinary and ‘A’ Ordinary shares of 16.449 pence per share (2021: 15.321 pence). This brings the total paid and proposed dividend for the year to 30 September 2022 to 23.693 pence per share, compared with (2021: 22.565 pence).
Fixed Assets and Capital Expenditure
In 2022, the total capital expenditure was £10,820k. The majority of this related to our property programme, with £7,689k being spent on the new site at Rue des Pres and a further £1,385k on our property strategy, including our Corporate Services office at Durell House and operational hub at Rue Grellier. 2022 2021
£’000 £’000
1,480 1,427
700
700 £2,180 £2,127
£1,589 £1,480
Aside from the property programme, we continued to focus on achieving best practice standards and resilience throughout our infrastructure. We spent £1,051k on reducing leakage and improving water quality throughout our network infrastructure, plus a further £695k on new and upgraded assets throughout the business.
At the year end, Jersey Water held assets with net book value of £85,249k (2021: £76,484k), with tangible assets making up 96% of the book value at £82,169k (2021: 98% £74,625k).
Loans and Borrowing
We have one revolving credit facility for £15,000k. The revolving credit facility gives us the ability to proactively manage our level of borrowing, offsetting cash balances to reduce interest charges when there are timing differences between investment requirements. We used a combination of the facility and surplus cash to fund the purchase of our new site at Rue des Pres. Our loans and borrowing at 30 September 2022 therefore increased by £7,000k to £15,000k (2021: £8,000k).
During the year, to hedge against interest rate exposure, we executed a £7,500k, 10 year interest rate swap. Under FRS 102, this derivative liability is stated at a fair value of £1,364k on the statement of financial position. This gain on the fair value has been recognised in the income statement, reflecting the substantial movement in interest rate forecasts since the execution date.
Cash Flow
There was a net cash outflow of £599k in 2022. Cash generated from operating activities in the year was £5,891, £639k lower than 2021. Cash inflows were lower than in the previous financial year due to a combination of tax payments, timings on payables and an increase in stock held. The purchase of our new property in summer 2022 resulted in a net outflow on investing activities, with a total of £10,728k spent on purchasing fixed assets offset by £7k received on the sale of assets. This large property purchase meant an increase in our borrowing by £7,000k. Once offset against higher interest rate charges and the payment of dividends, the total funds generated from financing activities were £4,231k.
Defined Benefit Pension Scheme
The defined benefit pension scheme formally closed to future accrual on 1 January 2022. This realised an actuarial gain of £7,877k as the expected future obligations of the Company became more certain. The value of the scheme at the end of the year was £5,235k, compared to £2,819k in the prior year, with the actuarial gain and market factors being key drivers in the movement in the valuation (as detailed in more detail in note 22 of the financial statements, page 79).
Deferred Tax Liability
The deferred tax liability increased in the year by £390k to £7,976k. The movement is primarily due to the amount charged to the statement of other comprehensive income in relation to the increase in fair value of the pension asset.
Natalie Passmore
Finance Director 7 December 2022
