Bristol Wtr.8t% Regulatory News (BWRA)

For further information contact:

Mel Karam, Chief Executive Officer

Laura Flowerdew, Chief Financial Officer

Bristol Water plc

Tel 0117 953 6470

Or contact:

Bristol Water Corporate Affairs on 0117 953 6470 during office hours or 0800 917 8066 at any time.

Six months to

30 September 2020

Six months to

30 September 2019

(unaudited)

(unaudited)

£m

£m

Turnover

59.6

63.1

EBITDA

23.9

29.5

Profit after taxation

3.3

9.3

Net debt (excluding 8.75% irredeemable cumulative preference shares)

377.4

349.1

Capital investment in the period

19.1

32.3

Six months to

30 September

2020

(unaudited)

Six months to

30 September

2019

(unaudited)

Year to

31 March

2020

(audited)

Note

£m

£m

£m

Revenue

5

59.6

63.1

125.5

Operating costs

6

(46.2)

(43.8)

(90.7)

Impairment losses on trade receivables

(2.4)

(2.0)

(4.8)

Operating costs before exceptional items

(48.6)

(45.8)

(95.5)

Exceptional operating costs

(0.9)

-

(7.3)

Total net operating costs

(49.5)

(45.8)

(102.8)

Operating profit

10.1

17.3

22.7

Net interest payable and similar charges

7

(5.3)

(5.4)

(12.4)

Dividends on 8.75% irredeemable cumulative preference shares

7

(0.5)

(0.5)

(1.1)

Net interest payable and similar charges

(5.8)

(5.9)

(13.5)

Profit on ordinary activities before taxation

4.3

11.4

9.2

Taxation on profit on ordinary activities

8

(1.0)

(2.1)

(8.7)

Profit for the period/year

3.3

9.3

0.5

Earnings per ordinary share

9

55.0p

155.0p

8.3p

Six months to

30 September

2020

Six months to

30 September

2019

Year to

31 March

2020

(unaudited)

(unaudited)

(audited)

Note

£m

£m

£m

Profit for the period/year

3.3

9.3

0.5

Other comprehensive income:

Items that will not be reclassified to profit and loss

Actuarial (losses)/gains on retirement benefit surplus

(0.3)

0.4

0.5

Re-measurement of defined benefit pension scheme

8

0.2

(0.1)

(0.1)

Other comprehensive (expense)/income for the period/year, net of tax

(0.1)

0.3

0.4

Total comprehensive income for the period/year

3.2

9.6

0.9

30 September

2020

(unaudited)

30 September

2019

(unaudited)

31 March

2020

(audited)

Note

£m

£m

£m

Non-current assets

Property, plant and equipment

10

676.9

649.3

671.8

Intangible assets

11

14.4

11.4

14.0

Other investments - Loans to a UK holding Company

65.5

68.5

65.5

Deferred tax assets

5.9

5.2

5.9

Retirement benefit surplus

12

9.4

9.7

9.7

772.1

744.1

766.9

Current assets

Inventory

1.7

1.7

1.7

Trade and other receivables

32.5

31.1

32.0

Cash and cash equivalents

11.0

13.9

10.1

45.2

46.7

43.8

Total assets

817.3

790.8

810.7

Non-current liabilities

Lease liabilities

13

(1.7)

-

(1.9)

Deferred income tax liabilities

(72.1)

(63.8)

(71.6)

Borrowings and derivatives

14

(386.3)

(362.4)

(379.0)

8.75% irredeemable cumulative preference shares

14

(12.5)

(12.5)

(12.5)

Deferred income

(82.2)

(80.7)

(81.8)

Government Grants

(0.3)

(0.3)

(0.3)

(555.1)

(519.7)

(547.1)

Current liabilities

Lease liabilities

13

(0.4)

(0.6)

(0.9)

Current portion of deferred income

(1.8)

(1.6)

(1.8)

Trade and other payables

(35.8)

(37.5)

(36.5)

Provisions for liabilities

15

(3.0)

-

(6.4)

(41.0)

(39.7)

(45.6)

Total liabilities

(596.1)

(559.4)

(592.7)

Net assets

221.2

231.4

218.0

Equity

Called-up share capital

6.0

6.0

6.0

Share premium account

4.4

4.4

4.4

Other reserves

5.8

5.8

5.8

Retained earnings

205.0

215.2

201.8

Total Equity

221.2

231.4

218.0

The financial statements of Bristol Water plc, registered number 2662226 on pages 4-17, were approved by the Board of directors on 10th December 2020 and signed on its behalf by:

Called up share capital

Share premium

account

Capital redemption

reserve

Retained earnings

Total

£m

£m

£m

£m

£m

Balance at 31 March 2019

6.0

4.4

5.8

207.3

223.5

Effect of adoption of IFRS16: Leases

-

-

-

(0.1)

(0.1)

Balance at 1 April 2019 as restated

6.0

4.4

5.8

207.2

223.4

Profit for the year

-

-

-

9.3

9.3

Other comprehensive income for the year:

Actuarial gains recognised in respect of retirement

benefit obligations

-

-

-

0.4

0.4

Re-measurement of defined benefit scheme

-

-

-

(0.1)

(0.1)

Total comprehensive income for the year

-

-

-

9.6

9.6

Ordinary dividends

-

-

-

(1.6)

(1.6)

Balance as at 30 September 2019

6.0

4.4

5.8

215.2

231.4

Balance at 1 April 2020

6.0

4.4

5.8

201.8

218.0

Profit for the period

-

-

-

3.3

3.3

Other comprehensive expense for the period:

Actuarial losses recognised in respect of retirement

benefit obligations

-

-

-

(0.3)

(0.3)

Re-measurement of defined benefit scheme

-

-

-

0.2

0.2

Total comprehensive expense for the period

-

-

-

(0.1)

(0.1)

Ordinary dividends

-

-

-

-

-

Balance as at 30 September 2020

6.0

4.4

5.8

205.0

221.2

Six months to

30 September

2020

(unaudited)

Six months to

30 September

2019

(unaudited)

Year to

31 March

2020

(audited)

Note

£m

£m

£m

Cashflows from operating activities

Profit before taxation

4.3

11.4

9.2

Adjustments for:

Deferred income amortisation

5

(0.9)

(0.9)

(1.8)

Depreciation

6

11.9

10.8

22.3

Amortisation of intangibles

6

1.9

1.4

2.9

Impairment of tangible assets

-

-

0.1

Difference between pension charges and contributions paid

0.4

0.2

0.6

Profit on disposal of assets

(0.1)

(0.7)

(0.7)

Interest income

7

(1.9)

(2.1)

(4.1)

Interest expense

7

7.9

8.1

18.0

Pension interest income

7

(0.2)

(0.2)

(0.4)

Increase in inventory

-

-

(0.1)

Increase in trade and other receivables

(0.5)

(3.3)

(2.8)

(Decrease)/increase in trade and other creditors and provisions

(1.1)

(0.8)

5.7

Cash generated from operations

21.7

23.9

48.9

Interest paid

(6.4)

(6.1)

(12.3)

Corporation taxes paid

(0.4)

(1.3)

(2.5)

Contributions received

1.3

1.6

3.8

Net cash inflows from operating activities

16.2

18.1

37.9

Cash flows from investing activities

Purchase of property plant and equipment and intangibles

(22.1)

(34.5)

(71.6)

Proceeds from sale of fixed assets

0.1

0.7

0.7

Interest received

1.9

2.1

4.1

Repayment of intercompany loan receivable

-

-

3.0

Net cash used in investing activities

(20.1)

(31.7)

(63.8)

Cash flows from financing activities

Proceeds from loans and borrowings

6.0

13.0

27.0

Transaction costs related to loans and borrowings

-

-

-

Payment of finance lease liabilities

(0.7)

(0.5)

(0.7)

Preference dividends paid

(0.5)

(0.5)

(1.1)

Equity dividends paid

-

(1.6)

(6.3)

Net cash from financing activities

4.8

10.4

18.9

Net increase/(decrease) in cash and cash equivalents

0.9

(3.2)

(7.0)

Cash and cash equivalents, beginning of period

10.1

17.1

17.1

Cash and cash equivalents, end of period

11.00

13.9

10.1

1

General Information

Bristol Water plc ("the Company") is a regulated Water only supply company holding an instrument of appointment as set out by the Water Industry Act 1991. The company is the licensed monopoly provider of water services in the Bristol area, and as such is regulated by the Water Services Regulation Authority - Ofwat.

The Company is a public liability company, limited by shares with irredeemable preference shares and debenture stock listed on the London Stock Exchange. The address of its registered office is Bridgwater Road, Bristol, BS13 7AT, England.

2

Basis of preparation

The financial information contained in this interim announcement does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006.The interim accounts have been prepared in accordance with Financial Reporting Standard 104 "Interim Financial Reporting" issued by the Financial Reporting Council and the Disclosure Rules and Transparency Rules of the United Kingdom's Financial Conduct Authority.

The Company has adopted FRS 101 "Reduced disclosure framework - Disclosure exemptions from EU-adopted IFRS for qualifying entities".

3

Accounting policies

The same accounting policies and methods of computation used in preparing the annual financial statements as at 31 March 2020 have been used in preparing these interim accounts.

3.1

Going concern

The Company meets its day-to-day working capital requirements through its cash reserves and borrowings. The Company's forecasts and projections show that the Company will be able to operate within the level of its current cash reserves and borrowing facilities. After making enquiries, the Directors have an expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. The Company therefore continues to adopt the going concern basis in preparing its financial statements. Further information on the Company's borrowings is given in note 13.

4

Critical accounting estimates and judgments

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances

The significant judgements made by management in applying the Company's accounting policies and the key sources of estimate uncertainty were the same as those applied to the financial statements for the year ended 31 March 2020.

5

Revenue

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Appointed income

Household - measured

26.0

24.2

49.0

Household - unmeasured

21.0

22.9

45.2

Non-household- measured

10.1

13.0

25.5

Non-household - unmeasured

0.1

0.2

0.3

Contributions from developers

0.9

0.9

1.8

Third party services

0.7

1.1

1.9

Rental income

0.4

0.3

0.7

59.2

62.6

124.4

Non-appointed income

Recreations

0.3

0.3

0.7

Rental income

-

0.1

0.1

Other

0.1

0.1

0.3

0.4

0.5

1.1

59.6

63.1

125.5

6

Operating expenses

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Operating expenses include -

Payroll cost, net of recharges to fixed assets and including

retirement benefit costs

9.8

9.2

18.6

Depreciation and amortisation

13.8

12.2

25.2

Profit on disposal of assets

(0.1)

(0.7)

(0.7)

Exceptional costs include -

Transformation costs

0.9

-

-

Provision for legal and similar costs

-

-

7.3

The transformation costs relate to a restructuring programme currently in progress.

The provisions for legal costs relate to two separate legal processes the Company entered into during the year ending 31 March 2020. See note 15.

7

Net interest payable and similar charges

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Interest payable and similar charges:

Bank borrowings

1.1

1.1

2.2

Term loans and debentures:

interest charges

5.1

5.0

10.0

indexation

1.2

1.7

5.0

Leases

0.2

-

-

Capitalisation of borrowing cost

(0.2)

(0.2)

(0.3)

Dividends on 8.75% irredeemable cumulative

preference shares

0.5

0.5

1.1

7.9

8.1

18.0

Interest receivable and similar income:

Interest income in respect of retirement benefit scheme

(0.2)

(0.2)

(0.4)

Loan to Bristol Water Holdings UK Ltd - interest receivable

(1.9)

(2.0)

(4.0)

Other external investments and deposits income

-

-

(0.1)

(2.1)

(2.2)

(4.5)

Total net interest payable and similar charges

5.8

5.9

13.5

The rate used to determine the amount of borrowing costs eligible for capitalisation was 3.6% (30 September 2019: 4.2%), which is the weighted average interest rate of applicable borrowings.

Dividends on the 8.75% irredeemable cumulative preference shares are payable at a fixed rate of 4.375% on 1 April and 1 October each year. Payment by the Company to the share registrars is made two business days earlier. The payments are classified as interest in accordance with IAS 39 "Financial Instruments - Recognition and Measurement".

8

Taxation

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Tax expense included in Income Statement

Current tax:

Corporation tax on profits for the period /year

0.5

1.5

1.2

Adjustment in respect of prior period

-

-

(0.2)

Total current tax

0.5

1.5

1.0

Deferred tax:

Origination and reversal of timing differences

0.4

0.6

0.7

Adjustment to prior periods

0.1

-

0.2

Effect of change in UK corporation tax rate

-

-

6.8

Total deferred tax

0.5

0.6

7.7

Tax expense on profit

1.0

2.1

8.7

Tax income/expense (included in other comprehensive income)

Remeasurement of post-employment benefit liability

(0.2)

0.1

0.1

Total tax income included in other comprehensive income

(0.2)

0.1

0.1

9

Earnings per ordinary share

At

30 September 2020

(unaudited)

At

30 September 2019

(unaudited)

At

31 March 2020

(audited)

m

m

m

Basic earnings per ordinary share have been calculated as follows -

Earnings attributable to ordinary shares

£3.3

£9.3

£0.5

Weighted average number of ordinary shares

6.0

6.0

6.0

55.0p

155.0p

8.3p

As the Company has no obligation to issue further shares, disclosure of earnings per share on a fully diluted basis is not relevant.

10

Property, plant and equipment

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Net book value, beginning of period

671.8

629.4

629.4

Adjustment for change in accounting policy

-

0.6

0.6

Additions

17.0

30.2

64.2

Disposals

-

(0.1)

-

Depreciation charge for the period

(11.9)

(10.8)

(22.3)

Impairment charge

-

-

(0.1)

Net book value, end of period

676.9

649.3

671.8

The net book value of property, plant and equipment includes £6.1m (30 September 2019: £5.9m) of borrowing costs capitalised in accordance with IAS 23. During the six months ended 30 September 2020 £0.2m was capitalised using 3.6% prorated annual capitalisation rate (30 September 2019 £0.2m, 4.2%).

11

Intangible assets

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2020

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Net book value, beginning of period

14.0

10.5

10.5

Additions

2.3

2.3

6.4

Disposals

-

-

-

Amortisation charge for the period

(1.9)

(1.4)

(2.9)

Net book value, end of period

14.4

11.4

14.0

12

Retirement benefits

Pension arrangements for employees have historically been provided through the Company's membership of the Water Companies' Pension Scheme (WCPS), which provides defined benefits based on final pensionable pay. The Company's membership of WCPS is through a separate section of the scheme. On 7 June 2018 the Trustee of the Bristol Water Section of the WCPS purchased a bulk annuity policy to insure the benefits for the members in the section. Following this, the method for valuing the liabilities of the pension scheme has remained the same. However, the scheme asset, in the form of the insurance policy, now match the value of the liabilities.

The gross pension surplus of £14.4m at 30 September 2020 (30 September 2019 £15.0m) relates to the market value of assets still held by the scheme, and is stated after including a £1.0m estimation of the liability arising to adjust certain scheme benefits to compensate for the effect of unequal Guaranteed Minimum Pensions for men and women.

Looking ahead, we expect the insurer will take over responsibility for the payment and administration of member benefits. Once this has happened members will no longer be members of the Section, instead they will have individual policies with the insurer. At this point the Section will be wound up.

In summary, assets and liabilities under IAS 19 were:

At

30 September 2020

(unaudited)

£m

At

30 September 2019

(unaudited)

£m

At

31 March 2020

(audited)

£m

Fair value of section assets

198.3

202.1

171.0

Present value of liabilities

(183.9)

(187.1)

(156.1)

Surplus in the section

14.4

15.0

14.9

Less: restriction of surplus

(5.0)

(5.3)

(5.2)

Net pension asset on IAS 19 basis

9.4

9.7

9.7

13

Leases

a) Amounts recognised in the Statement of Financial Position

The Statement of Financial Position shows the following amounts relating to leases:

At

30 September 2020

(unaudited)

At

30 September 2019

(unaudited)

At

31 March 2020

(audited)

£m

£m

£m

Included in Property, Plant and Equipment

Cost

2.5

12.7

14.5

Accumulated depreciation

(0.5)

(11.2)

(11.5)

2.0

1.5

3.0

Included in Intangible assets

Cost

-

1.3

1.3

Accumulated depreciation

-

(1.3)

(1.3)

Net borrowings

-

-

-

During the year a lease with a cost of £13.3m and a net book value of £0.6m of operational assets ended. The assets have not been disposed.

13

Leases (continued)

b) Amounts recognised in the income statement

The Income Statement shows the following amounts relating to leases:

At

30 September 2020

(unaudited)

At

30 September 2019

(unaudited)

At

31 March 2020

(audited)

£m

£m

£m

Depreciation charge relating to assets under leases

0.2

0.2

0.5

Interest expense (included in finance cost)

0.2

-

0.1

Expense relating to short-term leases (included in administrative expenses)

-

-

0.1

14

Net borrowings

At

30 September 2020

(unaudited)

At

30 September 2019

(unaudited)

At

31 March 2020

(audited)

£m

£m

£m

Net borrowings comprise -

Borrowings and derivatives due after one year

386.3

360.4

379.0

Lease liabilities due after one year

1.7

2.0

1.9

Current portion of lease liabilities

0.4

0.6

0.9

388.4

363.0

381.8

Cash and cash equivalents

(11.0)

(13.9)

(10.1)

Net borrowings excluding 8.75% irredeemable cumulative

preference shares

377.4

349.1

371.7

8.75% irredeemable cumulative preference shares

12.5

12.5

12.5

Net borrowings

389.9

361.6

384.2

Borrowing facilities

At the period end the Company had unutilised borrowing facilities of £44.0m.

Fair value of financial assets and liabilities measured at amortised cost.

The fair value of borrowings are as follows:

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Non-current

561.2

534.1

547.3

Current

0.4

0.6

0.8

520.1

534.7

548.1

15

Provisions for Liabilities

Six months to

30 September 2020

(unaudited)

Six months to

30 September 2019

(unaudited)

Year to

31 March 2020

(audited)

£m

£m

£m

Net book value, beginning of period

6.4

-

-

Additions

-

-

7.3

Utilised in the year

(3.4)

-

(0.9)

Net book value, end of period

3.0

-

6.4

In November 2019, the Company entered into a formal arbitration process with the Canal and River Trust ("CRT") concerning charges for the supply of raw water to the Company from the Gloucester and Sharpness Canal. Bristol Water is supplied raw water from the Gloucester and Sharpness Canal, under an agreement with CRT. The agreement provides for charges payable to CRT to be reviewed periodically and during 2018/19 CRT triggered a charges review seeking a substantial increase. On 7 December 2020, judgement was received from the arbitrator, resulting in an increase in the annual charge payable from 1 April 2018 onwards. The increase in the charges has been accrued in full in the six months to 30 September 2020, based on the ruling made. Following this ruling, clarification may be required on detail relating to the outcome of the arbitration, as well as on the apportionment of costs arising in respect of the arbitration.

Following the publication of Ofwat's 2019 Final Determination, which sets the price and services the Company must deliver over the 2020-2025 regulatory period, the Company requested a referral of this Determination to the Competition and Market's Authority ("CMA") in February 2020. The Company is seeking a re-determination of the outcomes, in order to ensure they reflect a sustainable, financeable position for the business. The Competition and Markets Authority (CMA) published its preliminary findings in September 2020. These findings indicated the CMA's initial conclusions that cost of capital in particular needed to materially increase compared with that set by Ofwat in its Final Determination. The CMA has now published a revision to its Administrative Timetable for the completion of its redetermination. It is now anticipated that the CMA will publish is Final Redetermination in relation to Bristol Water plc in February 2021. This represents a delay from the previous timetable, which had expected publication in December 2020.

A provision was recognised during the year ended 31 March 2020 in respect of the estimated costs associated with this process, of which £2.0m remains outstanding as at 31 March 2020. The process is currently expected to be completed by February 2021.

16

Commitments and contingent liabilities

Capital commitments at 30 September 2020 contracted for but not provided were £3.5m (2019: £7.2m).

17

Ultimate parent company and controlling party

The immediate parent company for this entity is Bristol Water Core Holdings Limited, a company incorporated in England and Wales.

As at 30 September 2020, the Directors consider, the ultimate parent and controlling party of the Company to be iCON Infrastructure Partners III, L.P acting through its Managing General Partner, iCON Infrastructure Management III Limited.

The smallest and largest group in which the Company is consolidated is Bristol Water Group Limited and copies of its consolidated annual report are available from Suite 1, 3rd floor, 11-12 St James's Square, London, SW1Y 4LB.

18

Related party transactions

During the six months to 30 September 2020 the Company spent £1.5m (2019: £1.6m) on the purchase of customer related services from BWBSL, a joint venture company between Bristol Water Holdings Limited and Wessex Water Services Limited. At 30 September 2020 £1.4m (2019: £0.7m) was receivable from BWBSL and £1.0m (2019: £1.4m) was payable to BWBSL.

During the six months to 30 September 2020 the Company recognised sales of £9.1m (2019 £10.9m) to Water 2 Business Limited (W2B), an associate company within the Bristol Water Group Limited group of companies. At 30 September 2020 £1.4m (2019: £1.8m) was receivable from W2B primarily in respect of water supply charges.

18

Circulation

This interim announcement is available on the Bristol Water web site: http://www.bristolwater.co.uk. Paper copies are also available from the Company's registered office at Bridgwater Road, Bristol, BS13 7AT.