Treasury and Exchequer
Ministerial Decision Report
Jersey New Waterworks Company Limited - 2021 Annual General Meeting voting instructions
- Purpose of Report
To consider the resolutions put forward for the Jersey New Waterworks Company Limited (JNWWC) Annual General Meeting (AGM) on 4 February 2021.
- Background
JNWWC is a public company with its Ordinary shares being traded, relatively infrequently. The States of Jersey is the majority shareholder owning 100% of ‘A’ Ordinary shares, 50% of the issued Ordinary shares and a substantial holding of Preference Shares. This gives the States of Jersey 83.33% of the voting rights.
The Directors of the company have proposed six Ordinary Resolutions to be considered at the AGM Meeting and these are outlined in the Notice of Annual General Meeting attached (Appendix A).
- Resolutions
The following resolutions have been put forward for consideration at the AGM.
3.1 Ordinary Resolution 1 - To receive the financial statements and reports of the directors and auditors thereon for the year ended 30 September 2020
The paragraphs below summarise the key financial matters that are included in the company’s Financial Statements. Throughout the commentary the comparatives provided for income statement amounts represent the 12 months to 30 September 2019.
Turnover decreased 0.8% to £17,627k when compared against £17,760k for the same time period in 2019. The decrease in turnover driven by lower rechargeable income rather than a variance in water revenue.
Overall, revenue from the sale of water contributed £16,701k compared with £16,400k for the same period in 2019. The increase of £301k was driven mainly by new customers together with the impact of the 2019 tariff increase. The onset of COVID-19 and the associated restrictions brought about changes in consumption patterns across all customer sectors. There was a significant decrease in water consumption by JNWWC’s commercial customers, most notably those in the tourism and hospitality sector. This reduction was offset by an increase in consumption by household customers, particularly over the period when working from home was the default and schools were closed. Throughout the period, JNWWC’s Customer Services Team have worked proactively with customers experiencing financial hardship, minimising the impact of the pandemic on payment arrears and bad debts.
Revenue relating to the installation of new water mains and connections was £294k, a decrease of 29% on the same period last year (£412k). This reduction is due to work being postponed during the lockdown period and differences in the size and nature of each connection.
Operating costs of £13,701k were 3.4% or £483k lower during 2020 compared to prior year (£14,184k). Lower electricity costs further contributed to the decrease representing the reduced need to pump water between reservoirs, following the wet start to the year. The benefit of this was felt throughout the summer despite the dry weather. This contrasts with the previous year where low water levels at the beginning of the year resulted in a greater need for pumping to meet demand.
Operating profit increased by 9.8% (£350k), in comparison to the corresponding prior period principally due to the reduction in operating costs explained above.
Net interest expense totalled £686k in 2020 which is a £98k decrease on the same period in 2019 (£784k). The reduction is attributable to the decreases in base rate during the year resulting in lower interest payments on bank loans.
Profit before taxation for the year was £3,240k, which is £448k or 16.0% higher than the same period in 2019, driven by the increase in operating profit arising principally from lower operating costs.
Income Tax charged in the period has decreased by £72k on the prior period to £560k; the reduction arises from a refund of income tax charged in 2018 reducing the current year charge.
Cash flow there was a net cash inflow of £71k in the period compared to a prior year equivalent inflow of £283k. The operating cash inflows are higher in the current period due to higher turnover, timing of trade receivables and payables and lower operating expenditure. However, non-recurring cash received in the prior period from the disposal of investment property resulted in lower overall cash inflow year on year.
Capital expenditure In 2020, the total capital expenditure was £3,553k. This figure includes £1,345k of expenditure on the Connect Programme. During the year, the Company recognised credits to the overall investment in capital projects representing accrued expenses in a prior period ultimately not incurred. As a result there was a net £1,020k spent on new and upgraded assets throughout the business. A further £1,188k was spent on mains renewals and metering, continuing JNWWC’s work to reduce leakage and improve water quality throughout the network. At the year end, the Company held assets with net book value of £77,429k (2019: £76,972k), with tangible assets making up 98% of the book value at £75,797k (2019: 99% £76,500k).
Loans and borrowings at 30 September 2020 remained unchanged at £20,282k (2019: £20,282k). The loan of £5,250k is due to mature in March 2021. At the time of writing the Company intends to renew the loan and do not anticipate any significant issues with securing the appropriate facility.
Defined pension scheme – Under FRS 102 the Company’s defined benefit scheme net surplus increased by £36k during the year, resulting in a net surplus remaining of £456k (2019: £420k). The increase in the surplus is primarily due to market driven changes in the discount rate used to calculate the present value of the defined benefit obligations. As a result, the present value of the obligation increased by £725k, although this was more than offset against the continued performance on the value of the plan’s assets which saw an increase of £761k in the year.
Appendix B provides a summary of the Key Performance Indicators.
3.2 Ordinary Resolution 2 - To declare a final net dividend of 14.771 pence per share on the ordinary and ‘A’ ordinary shares of the Company.
The Directors are recommending a final dividend on the Ordinary and “A” Ordinary shares of 14.771 pence per share, bringing the total paid and proposed for 2020 to 21.908 pence per share (2019: 16.188 pence per share).
The States of Jersey hold 50% of the Ordinary shares and 100% of the ‘A’ Ordinary shares.
The dividend will be paid (net of tax) by the company on 4th February 2021 to all shareholders on the register of members on 15th January 2021.
Note on Resolutions 3.3 – 3.5
The Board undertakes an annual formal assessment of its performance and that of individual Directors, including structured meetings between the Directors being assessed and the Chair. Following this review, the Chair and Senior Independent Director have confirmed that the Directors standing for re-election at the AGM continue to perform effectively and demonstrate commitment to their roles.
3.3 Ordinary Resolution 3 – To re-elect Tim Herbert (non-executive director) (who retires by rotation in accordance with the Articles of Association of the Company) as a director of the Company
Mr Herbert was first appointed to the Board in November 2015. He is a Non-Executive Director and serves as Chairman of the Remuneration Committee.
3.4 Ordinary Resolution 4 – To re-elect Michael Pocock (non-executive director) (who retires by rotation in accordance with the Articles of Association of the Company) as a director of the Company.
Mr Pocock was first appointed to the Board in May 2018. He is a Non-Executive Director and serves as Chairman of the Risk Committee.
3.5 Ordinary Resolution 5 – To elect Anthony Ferrar (non-executive director), who was appointed by the Board as a director on 1 July 2020, to fill a vacancy and who retires in accordance with Article 49.1 of the Articles of Association of the Company, as a director of the Company.
Mr Ferrar was first appointed to the Board in July 2020. He is a Non-Executive Director and serves as Chairman of the Audit Committee from 1 October 2020.
3.6 Ordinary Resolution 6- To re-appoint Deloitte LLP as auditors of the Company at a fee to be agreed by the directors.
Deloitte LLP as the current auditors, have indicated that they are willing to be re-appointed as the auditors of the Company.
- Recommendation
The Assistant Minister instructed the Treasurer and Greffier of the States to vote by proxy, in favour of the resolutions to be put before the Annual General Meeting of the Jersey New Waterworks Company Limited on the 4th February 2021.
- Reason for Decision
To fulfil the States’ role as shareholder of the Jersey New Waterworks Company Limited by exercising voting rights at the Annual General Meeting.
The States of Jersey is the majority shareholder owning 100% of ‘A’ Ordinary shares, 50% of the issued Ordinary shares and a substantial holding of Preference Shares. This gives the States of Jersey 83.33% of the voting rights. The Directors of the Company have proposed six resolutions to be considered at the AGM. These are outlined in the report and in the Notice of the Annual General Meeting and Form of Proxy.
- Resource Implications
There are no additional resource implications as a result of this decision.
Report author : Advisor Shareholder Relations | Document date : 20 January 2021 |
Quality Assurance / Review : Head of Shareholder Relations/ Head of Financial Governance | File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DS, WR and SD\2021-00xx - Jersey Water 2021 AGM voting instructions |
MD sponsor : Director of Treasury Operations and Investments |
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