Jersey Water: Annual Report and Financial Statements 2010.

Annual Report and Financial Statements 2010

The Jersey New Waterworks Company Limited

Contents

Directors, Officers and Advisers  Page 2 Board of Directors  Page 3 Chairman s Statement  Page 4 Business Review  Page 5 Corporate Governance  Page 12 Directors Report  Page 16 Independent Auditors Report  Page 18 Balance Sheet  Page 19 Profit and Loss Account  Page 20 Statement of Total Recognised Gains and Losses  Page 21 Cash Flow Statement  Page 22 Notes to the Financial Statements  Page 23 Five Year Summary  Page 36

Directors, Officers and Advisers

Directors Non Executive

Kevin Keen MBA, FCCA, FCMA Chairman

Carlyle Hinault Deputy Chairman

Anthony Cooke BA(Hons) Econ, CEnv, FCIWEM, HIWater, FRSA Senior Independent Director

Mary Curtis MA, Chartered FCIPD, MIoD Stephen Marie  FICWCI, MBIFM, ACIOB Peter Yates BSc, FCA

Executive

Howard Snowden EurIng, BSc (Eng), MSc, CEng, FICE, FIMechE, FIET, MIWater Managing Director and Engineer

Helier Smith BA(Hons), FCA, CDir, MIWater Finance Director

Secretary

Helier Smith BA(Hons), FCA, CDir, MIWater

Independent Auditors

Price waterhouseCoopers CI LLP Twenty Two Colomberie

St Helier

Jersey

JE1 4XA

Registered Office

Mulcaster House Westmount Road St Helier

Jersey

JE1 1DG

Board of Directors

From left to right: Carl Hinault, Tony Cooke, Helier Smith, Kevin Keen, Howard Snowden, Peter Yates, Stephen Marie, Mary Curtis .

Kevin Keen MBA, FCCA, FCMA

Kevin Keen was appointed to the Board in May 2007 as

a Non-Executive Director. He was previously Managing Director of Jersey Dairy and prior to that a Divisional Managing Director and Finance Director of Le Riche Group. Mr Keen is a fellow of both the Association of Chartered Certified Accountants and the Chartered Institute of Management Accountants.

Howard Snowden EurIng, BSc(Eng), MSc, CEng, FICE, FIMechE, FIET, MIWater

Howard Snowden joined the Company in 1992 as Senior Engineer and became Managing Director in May 2000.

Mr Snowden has worked in the water industry since 1970 for a number of companies including Yorkshire Water Authority (the forerunner to Yorkshire Water Plc). He is a fellow of the Institution of Civil Engineers, the Institution of Mechanical Engineers, the Institution of Engineering and Technology and a member of the British Dam Society and is a Panel Supervising Engineer under the Reservoir Act 1975.

Tony Cooke BA (Hons) Econ, CEnv, FCIWEM,  HIWater, FRSA

Tony Cooke became a Non-Executive Director of the Company on 12 June 2008. Mr Cooke is an economist

by background and he is the former Managing Director

of Bournemouth & West Hampshire Water Plc. He has previously held a number of Chief Executive and senior management roles in the United Kingdom and internationally. He is a Trustee of Utilities and Service Industries Training Ltd.

Mary Curtis MA, Chartered FCIPD, MIoD

Mary Curtis joined the Board as a Non-Executive Director on 12 June 2008. Mrs Curtis is a fellow of the Chartered Institute of Personnel & Development and is a Director of a privately owned consultancy business, Calmera Business Consultancy. She formerly worked in London before moving to Jersey in the roles of Offshore Island Regional Human Resources Manager at Deloitte & Touche and then Director of Human Resources at Mourant.

Carl Hinault

Carl Hinault joined the Board as a Non-Executive States of Jersey nominated Director in March 2000 and was re-elected to the Board in 2002 following the removal of the requirement for States of Jersey nominated Directors. Mr Hinault, a retired grower, was ConnØtable of the Parish of St John for six years until December 2000 and prior to that served as Deputy of

St John for 12 years; he was also a Procureur du Bien Public for the Parish of St John for a number of years.

Stephen Marie FICWCI, MBIFM, ACIOB

Stephen Marie became a Non-Executive Director of the Company in 2002. Mr Marie is the Managing Director of ComProp (CI) Ltd, a Channel Island commercial property development company and has previously been involved, at both senior executive and director levels, in the property industry for a number of years. He is a fellow of the Institute of Clerks of Works and Construction Inspectorate of

Great Britain Inc., a member of the Institute of Facilities Management and an associate of the Chartered Institute

of Building.

Helier Smith BA (Hons), FCA, CDir, MIWater

Helier Smith was appointed to the Board as Finance Director in October 2003 after joining the Company in 2002. He was previously employed by KPMG in the UK and Jersey where he worked for eleven years in the manufacturing, distribution and finance sectors. Mr Smith qualified as a Chartered Director in 2010.

Peter Yates BSc, FCA

Peter Yates was appointed to the Board in May 2009.

Mr Yates, a Chartered Accountant and former President of the Jersey Society of Chartered and Certified Accountants, was previously a partner of Price waterhouseCoopers working in the United Kingdom and Jersey for over 31 years.

Chairman s Statement

I am pleased to report that your Company generated profits before tax of £4,151,000, which was just ahead of last year. Comparison with our performance in 2009 is not straightforward due to a number of one off costs and gains last year. When these are excluded our performance was in line with our budget and reflected the benefits of our efforts to reduce costs on a sustainable basis for the benefit of customers and shareholders alike.

Turnover of £14,652,000 was slightly lower than 2009 due to a reduced level of rechargeable works reflecting lower levels of development in the Island. Our customers benefited from our decision to freeze tariffs for 2010,

the 8th successive year price increases have been maintained below inflation.

Operating expenditure was reduced by some 5% to £9,594,000, which was in part due to a one off impairment charge of £422,000 last year although the successful execution of our decision to outsource our mains and service laying operation is having a positive effect on overall costs.

The Company continued to invest in its infrastructure spending £3,460,000 on capital expenditure, including £1,200,000 on the introduction and rollout of the universal metering scheme which we anticipate will take approximately five years and involve capital investment of approximately £6m. It is hoped that the reduced water consumption from universal metering will delay the need for further major investment, such as the extension of the Val de La Mare Reservoir, for as long as possible and of course metering is the fairest way for consumers to pay for water. We also continued to invest in the renewal of our distribution network.

During 2011 the Company will invest approximately £1.6 million in extending the life of the Val de la Mare Reservoir, which has historically suffered from the effects of alkali aggregate reaction (AAR).

Looking to the future, it is clear that the universal metering programme will change the nature of the Company s income profile with a further transition away from fixed income turnover, based on unmeasured charges, towards more variable demand driven income. To protect against the effects of this variability, the Company will continue to work on improving efficiency and streamlining the business so as to be able to maintain rates of capital investment and continue to provide a suitable return to investors, whilst at the same time meeting the needs of customers.

Your Board is pleased to propose a final dividend

on ordinary and A ordinary shares of £2.24 bringing the total dividends for the year to £3.40 per share,

an increase of 6.6%.

As part of our commitment to creating value for shareholders we introduced a dealing service for shareholders in 2010 which has improved liquidity in the Company s share capital and seen ordinary shares trading at up to £80 per share. To further improve liquidity and to increase the fixed capital of the Company it has been decided to propose a bonus issue of shares and a share split to shareholders at the forthcoming annual general meeting. If approved, a holder of one ordinary £1 share would end up with 20 ordinary shares but with a reduced nominal value of 50p.

At the forthcoming Annual General Meeting, we will also be proposing that the Company adopts a new set of Memorandum and Articles of Association to bring these important documents completely up to date and compliant with both the Companies (Jersey) Law 1991 and best practice.

Both Helier Smith and I are due to retire by rotation at the coming Annual General Meeting and will be offering ourselves for re-election. The Nomination Committee, which on this occasion was chaired by Tony Cooke,

our Senior Independent Director, has considered

these re-elections carefully and recommends them

to shareholders.

Your Company generated profits before tax of £4,151,000 for the year.

I am pleased to report that the water produced by the Company continues to be of a very high standard with

a compliance rate of 99.86%. This compliance level is slightly up on 2009 (99.84%). We remain concerned about the ongoing relatively high levels of nitrates in water resources. When rainfall levels are above average in the early months of the year, nitrate levels in all our surface water resources are greater than 50 mg/l. Whilst the Company has dispensations for 33% of samples taken

for nitrates, this is a short-term measure. We continue to promote the need for the States Environment Department to implement an appropriate, sustainable and long-term solution to this ongoing diffuse pollution.

Finally it is traditional and entirely appropriate to pay tribute to the efforts of the staff who have worked even harder this year to deliver these results. They have responded positively to the many challenges faced

by them delivering high quality water to Islanders on a sustainable basis and as efficiently as possible given the limited economies of scale available to us.

Kevin Keen 8 April 2011

Business Review

Financial Performance

• Turnover

Turnover for 2010 was £14,652,000, compared to £14,728,000 in 2009.

Water related income totalled £13,854,000,

an increase of £88,000 on the 2009 figure of £13,766,000. This increase was achieved without any tariff increase in 2010.

Metered Water income

Turnover from metered water sales totalled £7,465,000 compared to £6,874,000 in 2009. The increase of £591,000 being due to the addition of 337 new connections in the year and the conversion of 2,690 supplies from unmetered to metered. Metered water sales now account for 54% of all water related income (2009: 50%) and it is anticipated that this will increase rapidly over the next five years with the rollout of the meter installation programme.

Unmetered Water income

Income from unmetered water sales for 2010 was £5,772,000 compared to £6,262,000 in 2009.

The reduction of £490,000 being due to the policy of installing water meters on change of occupier and the rollout of the universal metering programme. Within the next four years it is expected that unmeasured water charges will account for less than 10% of turnover.

Non water related income

Rechargeable works income arises from the installation of new water connections. In 2010, rechargeable works income totalled £475,000 (2009: £640,000). The reduction of £165,000 is entirely driven by the reduced number of new homes under construction in the year.

• Operating expenditure

Operating expenditure for the year was £9,594,000 compared to £10,151,000 the previous year. The 5% reduction in costs amounting to £557,000 was due, in the main, to the following factors:

2009 reorganisation

In 2009, the Company undertook an internal reorganisation that resulted in the outsourcing of the Company s main laying and service laying functions and the reduction in the workforce by approximately 25%. The on-going efficiencies generated by the reorganisation amount to approximately £335,000 in 2010, broadly in line with expectation. This saving has resulted in the net positive variance over 2009 of £186,000.

2009 asset impairment provision

In 2009, the Company wrote down the carrying value of its standby water quality improvement plant in the Le Mourier catchment area resulting in a charge to the profit and loss of £422,000. There was no such charge in 2010.

Water resource licence fees

Under the Water Resources (Jersey) Law 2007,

the States of Jersey have the power to levy water abstraction licence fees on the Company. The fee was first chargeable for the year ended 31 December 2010 and totalled £99,000 (2009: £Nil).

After taking the above factors into account, operating expenditure was broadly in line with that of the previous year with the balancing variance coming mainly from the savings in insurance costs of £60,000, countered by costs associated with the planned recruitment of additional staff in the engineering, metering and finance departments.

• Operating profit

Operating profit for 2010 was £5,058,000 (2009: £4,577,000), an increase of 10% on 2009.

• Profit on disposal of fixed assets

During the year the Company sold one area of land and various pieces of plant and equipment generating net proceeds of £169,000 and a profit on disposal of £93,000. This is in contrast to 2009 when the sale of a number of pieces of land generated profits of £638,000.

• Interest costs and income

The low base rate throughout 2010 meant that interest charges remained low. The low interest rates in the year coupled with lower average cash balances also meant that interest earned on cash balances reduced by £27,000 to £10,000.

• Income tax

The income tax charge for 2010 was £830,000, an increase of 6% on the 2009 charge of £786,000.

The variance is due to a reduction in the current income tax charge for the Company of £29,000 countered by an increase in the deferred tax charge of £73,000.

Business Review - continued

• Equity dividends

The Directors are proposing a final dividend for 2010 of £2.24 per share bringing the total equity dividend for 2010 to £3.40 per share (2009: £3.19 excluding the special dividend); an increase of 6.6%.

Handois water treatment works

Business Review - continued

Financial Performance

• Capital expenditure

Capital expenditure for 2010 totalled £3,460,000 (2009: £3,309,000). An analysis of expenditure by type is provided in the table below.

Capital expenditure by type

Property maintenance 2%  Property 3%

Water quality 5%

IT infrastructure 3%  Mains & service

renewals 35%

Vehicles, plant, tools & equipment 6%

Water resources 6% Mains extensions 4%

Metering 36%

• Investment properties

During the year, the Board reviewed the domestic property owned by the Company and determined that two properties, with a net book value of £21,000, would cease to be used within the business and would be reclassified as investment properties. The reclassification of these properties and subsequent revaluation (following the Statement of Standard Accounting Practice 19) generated a revaluation gain of £1,314,000 (2009: £Nil) recognised in the Statement of Total Recognised Gains & Losses.

• Loans and borrowing

Total borrowing at the end of 2010 was unchanged at £20,282,000.

2010  2009

£ 000  £ 000

Bank loans  - falling due within one year  5,250  3,650

- falling due between one and two years  -  5,250

- falling due after two years but less than five years    9,650   6,000 £14,900  £14,900

Preference share capital    5,382   5,382 Total borrowing  £20,282  £20,282

Subsequent to the year end, the Company renewed the loan maturing in 2011 for a further 10 years.

Business Review - continued

• Defined benefit pension scheme

In 2010, the Company paid an additional £1,000,000 (2009: £Nil) contribution into the Defined Benefit Pension Scheme in order to help reduce the scheme deficit. This was in addition to regular contributions of £671,000 (2009: £926,000).

As of 31 December 2010, there was a net surplus on the scheme of £388,000, compared with a net deficit of £854,000 in 2009. The improvement in the scheme s position in 2010 is attributed to the combined effects

of the employer contributions referred to above and actuarial gains in the year of £106,000 (2009: losses

of £855,000) both countered by the on-going revenue costs of maintaining the scheme totalling £241,000 (2009: net credit of £164,000) and a deferred tax charge of £311,000 (2009: £51,000).

Connections, Metering and Charges

During 2010, the Company installed water meters on 2,690 existing connections and started charging them on the basis of volume consumed. By the end of 2010 the total number of metered connections stood at 16,248 representing 45% (36% in 2009) of the total.

Following the publication of the Company s Water Resource Management Plan, in May the Company started its five year programme of metering all mains water supplies in the Island and, in 2010, fitted 1,560 meters in the first 8 months of this programme. By the end of 2011, it is expected that over 50% of water connections will be metered, which is a major milestone for the project.

Val de la Mare Reservoir

The results of the metering programme are already being seen. As well as reducing customer demand for water, one of the main aims behind the metering programme is to identify and reduce leakage on customer supply pipes, a major constituent of overall leakage. In one area that was universally metered in 2010, water consumption has reduced by approximately 25% as a result of reduced leakage and changes in customer demand. Whilst reductions at these levels are not expected across the Island, they do confirm that the metering policy does play a key role in reducing leakage and managing demand.

2010 meter installations

Change of occupier - 789

29%

Universal metering - 1,560

58%

Customer request - 341

13%

During the year, 337 new water connections were installed; 319 domestic and 18 commercial.

There were no increases in water charges for either metered or unmetered customers in 2010. The Company has recently announced that there shall be no increase in tariffs for metered customers in 2011 and that unmetered tariffs shall increase by 1.5% with effect from 1 April 2011.

Water Supply and Demand

The demand for water in 2010 was 7,220 million litres, which is 0.5% lower than that recorded in 2009 and despite the effects of an additional 337 water connections in the year. The reduction in demand is in part due to the relatively high rainfall for 2010 and partly due to the results of demand management measures implemented by the Company.

In the past ten years there has been an increase of 17% in

the number of connections to the water network but annual demand for water has remained consistent over the period.

Business Review - continued

Total water supplied by year (ML)

8,000

7,317 7,207 7,301 7,305 7,291 7,484 7,182 7,402 7,253 7,220 7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Total water supplied

Rainfall during 2010 proved to be a series of extremes; February, August and November saw levels significantly in excess of the average whilst March, April, May and July were much drier than normal. With reservoirs starting the year 94% full and with plentiful rainfall spread throughout the year reservoir levels remained healthy and there was no need to consider preparation of the desalination plant for operation.

In January 2010, the Company published its Water Resource Management Plan (WRMP) which estimates water availability and demand during the next 25 years.

The WRMP sets out the measures that the Company plans to undertake in respect of water resources and demand management to ensure maintenance of a secure water supply during this period. The WRMP will be reviewed and updated every 5 years, when the opportunity will be taken to review changes in rainfall predictions (due to climate change) and water demand, taking into account the effects of measures implemented such as universal metering.

In 2010, the Company concluded its review of the availability of additional water resources suitable for extraction from the ground water in the St Ouen s Bay aquifer. The review identified that additional volumes  of water could be available in the northern part of the aquifer. However, the cost of obtaining this water was relatively high as the project would require extending the raw water pipeline system to reach the proposed borehole sites and then drilling a number of new boreholes. Whilst there is the potential for this scheme to go ahead in the future, the Company will concentrate its efforts on more cost effective solutions in the short term, securing water savings through further demand management measures including mains renewals, pressure reduction and metering.

The WRMP also includes longer-term proposals to increase the capacity of Val de la Mare Reservoir. No firm timescale has been made on this large project and it will be dependent on the effects of measures being implemented in the next

5 years. In order to prolong the life of the dam, prepare for any possible extension works and comply with modern seismic performance requirements, work will be undertaken in 2011 to line the upstream face of the dam with a plastic water-proof membrane.

The 50 year old dam at Val de la Mare Reservoir is a gravity mass concrete dam, parts of which have historically suffered from the effects of alkali aggregate reaction (AAR). This is a phenomenon which has become evident in many concrete structures around the world, where aggregate high in silica reacts with the cement. The condition of the dam is safe and much work on monitoring the effects of AAR has been undertaken during the past 30 years to ensure this position

is maintained. The new membrane will help to remove moisture from the structure of the dam, reducing the effect

of AAR and prolonging the life of the dam. Advances in dam maintenance and protection technologies have meant that these types of plastic membrane are now commonplace in dams all over the world.

Business Review - continued

Water Quality

The quality of water supplied by the Company in 2010 was of a very high standard with an overall compliance rate of 99.86% with water quality requirements of the Water  (Jersey) Law 1972, slightly up on 2009 (99.84%).

The bacteriological compliance of water leaving the treatment works was 100% (2009: 100%) and there were no herbicides or pesticides detected in the treated

water supplied.

During 2010, the average concentration of nitrates in the water supplied by the Company was 42.1mg/l, well below the statutory limit of 50mg/l. However, on 23 occasions in 2010 (2009: 23 occasions) the concentrations in supply exceeded 50mg/l, with the highest reaching 56.7mg/l (2009: 59.8mg/l). The results were well within the limits set in the five year dispensation from the Water (Jersey) Law 1972 approved by the Minister for Planning & Environment in 2008. The dispensation for nitrates allows 30% of samples to exceed the statutory 50 mg/l limit but not to exceed 70 mg/l. There are no known risks to health with bacteriologically safe water for nitrates below 100 mg/l.

The concentration of nitrates in the surface waters are determined by the season, rainfall patterns and the timing and rate of application of agricultural fertilisers. The water resources available to the Company are almost wholly derived from these surface waters. Whilst the Company takes active steps to reduce the concentration of nitrates in treated water by extensive blending and careful selection of sources, the underlying level of nitrates is outside of its control.

Until such time as there are material reductions in the concentrations of nitrates in the raw water resources,

the Company will be reliant on the dispensations from the limits set out in the law. The Company believes that the only viable long term solution to the problem is through the implementation, by the States of Jersey, of water catchment management areas which will help to reduce the levels of diffuse nitrate pollution in catchment areas and improve the quality of the water available for abstraction.

Further details on water quality are produced in the Company s 2010 Water Quality Report.

Mains Network

The work associated with the maintenance, repair, renewal and installation of water mains was entirely undertaken by an external contractor for the first time in 2010. The working method has proved to be successful, with increased efficiency resulting in cost savings over previous in-house working methods.

During 2010, 1.7 km of new water mains were laid, with just over 1km of this total being laid to supply water to new housing developments.

In 2010, the Company renewed or relined 2.7km of old cast iron and galvanised iron water mains and pipes (2009: 1.8km). The majority of these mains are located within the St Helier area, which is the oldest part of the water supply network.

When renewing or relining treated water mains the Company also takes the opportunity to renew all service pipes and

stop valves, which incorporate carriers for water meters. Doing so helps to eliminate lead service pipes from the network, improves water quality, reduces service pipe leakage and will facilitate the subsequent installations of meters as part of the universal metering process.

In 2010, as part of the mains rehabilitation process,

the Company undertook a trial of new mains relining technology. The process which involves spraying a structural plastic lining along the length of the main was thought to have the potential to speed up the rehabilitation process

and reduce costs. In total, the Company spray lined just

over 1km of main during 2010. Experience from the project indicates that the technology is best suited to long runs of main with few connections. Where mains were shorter in length and had many service connections (as they are throughout St Helier) the benefits of the process over the wholesale replacement of the main were offset by the additional work caused by the number of connections.

Water Quality Laboratory

Business Review - continued

Treatment and Processing

Work on the first phase of automatic control and optimisation of the treatment process plant at Handois and Augrs

water treatment works was completed in 2010. This provides the means for smoother and optimised operation of the treatment processes and reduces the manual input

previously required to set and adjust water production outputs. The second phase of the work is programmed

to be undertaken in 2011 and will concentrate on optimisation and automatic control of water levels within the treated water service reservoirs.

A new sodium carbonate handling and batch processing system was installed at Handois water treatment works. The system is identical in design to the unit installed at Augrs water treatment works in 2009. This allows easier handling of this bulk dry powder material, improved mixing and batching for its use. Sodium carbonate is used to correct the water pH post treatment.

Handois water treatment works

Community and Environment

During 2010, the Company provided the venue for the Grass Roots music festival at the base of the Val de La Mare Reservoir for the second time. At the festival the Company sold its branded reusable water bottles raising funds for the charity Water-aid whilst raising awareness of the need for water conservation and the environmentally beneficial nature of consuming tap water rather than bottled water.

Both Val de La Mare Reservoir and Queen s Valley Reservoir remain popular venues for the population of the island.

Jersey Water maintains them to a high standard,

protecting the diverse ecology present at both reservoirs

and promoting their use for complementary activities.

The Company licences the reservoirs for use by the

Jersey Fresh Water Angling Association, stocking them

with brown trout.

In 2009, the Company announced the establishment of

the David Norman Bursary Award, aimed at part funding students from Jersey interested in studying a degree level course in a subject relevant to the supply of water. In 2010, the Company awarded its second bursary. Bursary students are given paid employment with the Company during holidays in order that they may gain work experience and also to enable them to develop an understanding of the workings of a water company and water conservation.

The Company is also an active supporter of the Jersey Employers Network on Disability (JEND) and supports various employment initiatives in Jersey designed to help people gain experience and secure employment, including Workwise, Jersey Employment Trust and Project Trident.

In recognition of our support in the community the Company gained a Platinum Development Award from Skills Jersey

in 2010.

Corporate Governance

Introduction

In July 2003, the Board voluntarily resolved to adopt the requirements of the Combined Code on Corporate Governance issued by the Financial Reporting Council ( the Code ).

The Board is of the opinion that, throughout the year under review, the Company has been in compliance with the Code provisions set out in Section 1 of the Code except for the following matter:

• The Code includes a requirement that Non-Executive Directors serving longer than nine years on the Board should be subject to annual re-election. One third of Directors are required to offer themselves for re-election each year and the Board is of the opinion that re-election once every three years is sufficient for the purposes of the Company.

Directors and the Board The Board

The Board comprises eight Directors, two of whom are Executive and six of whom are Non-Executive Directors.  The Board meets regularly, normally ten times each year and for ad hoc meetings as and when required. The role of the Board is to set the overall operating strategy, approve detailed operating plans and budgets, monitor performance against plans and oversee the activities of the Executive Directors. The Board has delegated the day to day operation of the activities of the Company to the Executive Directors.

The Board is supplied with regular timely management information through which it can monitor the performance, activities and financial position of the Company and on which decisions can be based.

Meetings and Committee membership

During the year, the Board met nine times. Details of Board meeting attendance, Committee membership and Committee meeting attendance are provided in the table below.

Corporate Governance - continued

Director independence

The Board considers all Non-Executive Directors to be independent in character and judgement. However, Carl Hinault has been a Board member for more than ten years and does not therefore meet the criteria of independence set down in the Combined Code. Accordingly, the Board has determined that Tony Cooke, Mary Curtis , Stephen Marie and Peter Yates shall be deemed independent.

Performance evaluation

In order to ensure that the Board continues to operate effectively, it has developed and implemented a process of performance evaluation. The process measures the performance of the Board as a whole against a set of predefined targets and of individual Directors by way of self and peer appraisal. The results of the performance assessments and appraisals are fed back to the individual Directors and the Board as a whole (as appropriate) and action taken accordingly.

Reappointment

Except where a Director is appointed to fill a casual vacancy, all Directors are appointed by the Shareholders at the Annual General Meeting. One third of the Directors, or where the number of Directors is not a multiple of three, the number nearest to but not exceeding one third, retire by rotation (based upon length of service) and, where eligible, seek re-election each year. Directors appointed to fill a casual vacancy must seek formal appointment by the Shareholders at the next Annual General Meeting. Biographical notes of all Directors are included on page 3.

Relations with shareholders

The Company is in regular contact with its majority and controlling shareholder, the States of Jersey. Details of contact with and the views of the States are passed on to the whole Board as necessary.

Queen s Valley Reservoir

Audit Committee

The Audit Committee is made up of Peter Yates (Chairman), Tony Cooke and Carl Hinault. The auditors, Price waterhouseCoopers CI LLP, and the Executive Directors, Howard Snowden and Helier Smith also attend the meetings by invitation.

The terms of reference of the Audit Committee, which are available upon request, require it to meet at least twice per annum. Additional meetings may be called where deemed necessary. The Committee is charged by the Board with the following main responsibilities:

• To monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company s financial performance. The Committee is briefed on changes to reporting requirements and provided with information on any accounting or reporting issues that arise. The Audit Committee review in detail the financial statements before making a recommendation to the Board as to whether or not they should be formally approved.

• To review the operation and effectiveness of the Company s internal financial and other controls and make recommendations for improvement where necessary. During the year, the Committee continued its process of risk assessment and evaluation of effectiveness of the systems of internal control.

• To oversee the external audit process and manage the relationship with the external auditors. The Committee formally considers the performance and independence of the external auditors on a regular basis taking into consideration all applicable professional and regulatory requirements. The Committee also has procedures in place to protect auditor independence and control the extent to which the auditors may be retained for non audit services and the basis upon which such services are purchased.

• To make recommendations to the Board as to the re-election and remuneration of the auditors at the Annual General Meetings based upon its assessment of the performance of the auditors and giving due regard to their continued independence and any other regulatory or professional requirements.

The Committee regularly assesses the need for an internal audit function and has determined that the establishment of such a function is, at the present time, not cost effective.

Corporate Governance - continued

Remuneration Committee

The Remuneration Committee is made up of Stephen Marie (Chairman), Mary Curtis and Kevin Keen. The Executive Directors, Howard Snowden and Helier Smith may also attend the meeting by invitation. No Director plays any role in the determination of their own remuneration.

The terms of reference of the Remuneration Committee allow it to meet as and when necessary to:

• Review the remuneration of senior salaried staff.

• Review and determine the level of remuneration of Executive Directors.

Nomination Committee

The Nomination Committee comprises Kevin Keen (Chairman), Tony Cooke, Mary Curtis , Carl Hinault, Stephen Marie and Peter Yates. It is primarily responsible for the selection and appointment of the Company s Executive and Non-Executive Directors as and when required.

The other duties of the Committee include:

• Making recommendations to the Board as to the re-election of Directors under the retirement by rotation provisions in the Company s Articles of Association whilst giving due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required.

• Reviewing and making recommendations to the

Board as to the succession planning for Executive

and Non-Executive Directors.

• Regularly reviewing the structure, size and composition required of the Board compared to its current position and making recommendations to the Board with regard to any changes.

• Keeping under review the leadership needs of the organisation, both Executive and Non-Executive, with a view to ensuring the continued ability of the organisation to operate effectively.

When selecting candidates for potential appointment as a Non-Executive Director, the Committee evaluates the needs of the Company and identifies the necessary skills and experience required by candidates for consideration.

The Nomination Committee makes recommendations

to the Board taking into account the performance of the candidates at interview, their skills and experience and

their ability to meet the specific needs of the Company. Consideration is given to the use of external recruitment consultants and open advertising in the recruitment process. However, this is weighed against the cost of doing so and the specialist needs of the Company as a water supplier.

Internal controls

The Board is responsible for ensuring that there are effective systems of internal control in place to reduce the risk of misstatement or loss and to ensure that business objectives are met. These systems are designed to manage

(rather than to eliminate) the risk of failure to achieve business objectives and can only provide reasonable and not

absolute assurance against material misstatement or loss.

The Company has developed and adopted a corporate

and operational risk register detailing and risk grading the significant risks faced by the Company. Alongside the register is a process through which the significant risks faced by the business are identified and evaluated on a regular basis and the controls operating over those risks assessed

to ensure that they are adequate.

The process of risk assessment and reviewing the effectiveness of the systems of internal control is regularly reviewed by the Audit Committee, accords with Turnbull guidance and has been in place for the whole of the year, up to and including the date on which the financial statements were approved.

Controls adopted by the Board (or its Committees) to ensure the effectiveness of the systems of internal control include the following:

• The review of the corporate risk register maintained and updated by the Company and of the status of any actions arising from their regular review.

• The receipt of confirmation from Senior Management of the proper operation of controls throughout the period of the review.

• The review and approval during the year of terms of reference of sub committees.

• The review and approval during the year of the schedule of matters specifically reserved for its attention.

• The review of reports received from the Audit Committee concerning the findings of the external auditors on the financial statements of the Company and the systems of internal control.

Corporate Governance - continued

Directors' responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Jersey Company law requires the Directors to prepare financial statements for each financial period in accordance with any generally accepted accounting principles.

The financial statements of the Company are required

by law to give a true and fair view of the state of affairs  of the Company and of the profit or loss of the Company for that period. In preparing these financial statements,

the Directors should:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• specify which generally accepted accounting principles have been adopted in their preparation; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping accounting records which are sufficient to show and explain its transactions and are such as to disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements prepared by the Company comply with the requirements of the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company s website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Desalination Plant

Directors Report

The Directors of the Company present the financial statements for the year ended 31 December 2010. Activities of the Company

The Company was incorporated in 1882. The principal activities of the Company are the collection, treatment and supply of water for commercial and domestic use throughout the Island. The Company has adopted Jersey Water as its trading name.

Review of business and future developments

The results for the year are set out on page 20. A review of the Company s business during the year and an indication of the likely future development of the business are provided in the business review on pages 5 to 11.

Dividends

Preference shares

In 2010 the Company paid dividends on preference shares totalling £381,000 (2009: £381,000).

Directors

Changes in Directors

The Directors of the Company on the date the financial statements were approved are detailed on page 2. All Directors were Directors of the Company throughout the year ended 31 December 2010.

In accordance with the provisions of Article 74 of the Company s Articles of Association, Mr Kevin Keen and Mr Helier Smith will retire at the forthcoming annual general meeting and, being eligible, offer themselves for re-election.

As described on page 13, the Board has undertaken a formal assessment of its performance and that of the

individual Directors, including structured meetings between the Directors being assessed, the Chairman and the Senior Independent Director. Following this review, the Chairman has confirmed that the Directors standing for re-election at the Annual General Meeting continue to perform effectively and demonstrate commitment to their roles.

Directors Report - continued

Directors interests

Particulars of the holdings of Directors, including family and beneficial interests, in the share capital of the Company as at 31 December 2010 are:

Tony  Mary  Carl  Kevin  Stephen  Helier  Howard  Peter Cooke Curtis Hinault Keen Marie Smith Snowden Yates

Ordinary shares 104 - 100 200 100 146 - - Preference shares - - - 3,972 - 3,285 95 -

There have been no subsequent changes in Directors interests up to the date of approval of the financial statements. Insurance of Directors and Officers of the Company

The Company maintains an insurance policy on behalf of all Directors and Officers of the Company against liability arising from neglect, breach of duty and breach of trust in relation to their activities as Directors & Officers of the Company.

Substantial shareholdings

Set out below are details of significant shareholdings (3% or more) in each class of share of the Company as at 8 April 2011.

Auditors

A resolution to re-appoint Price waterhouseCoopers CI LLP as the Company s auditor will be proposed at the forthcoming Annual General Meeting.

By Order of the Board

Helier Smith Company Secretary 8 April 2011

Independent Auditors Report

to the members of The Jersey New Waterworks Company Limited

We have audited the financial statements of The Jersey New Waterworks Company Limited for the year ended 31 December 2010 which comprise the balance sheet

as of 31 December 2010, the profit and loss account,

the statement of total recognised gains and losses,

the cash flow statement and the related notes.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards.

Opinion on financial statements

In our opinion the financial statements:

• give a true and fair view of the state of the Company s affairs as at 31 December 2010 and of its profit and cash flows for the year then ended;

• have been properly prepared in accordance with United Kingdom Accounting Standards; and

• have been properly prepared in accordance with the

Respective responsibilities of directors and auditors requirements of the Companies (Jersey) Law 1991.

As explained more fully in the Directors Responsibilities Statement set out on page 15 the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors.

This report, including the opinion, has been prepared

for and only for the Company s members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving this opinion, 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 the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on other matters

In our opinion the information given in the Directors Report for the financial year for which financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies (Jersey) Law 1991 requires us to report to you if, in our opinion:

• proper accounting records have not been kept; or

• the financial statements are not in agreement with the accounting records;

• we have not received all the information and explanations we require for our audit.

Mark James

For and on behalf of Price waterhouseCoopers CI LLP Chartered Accountants

Jersey, Channel Islands 8 April 2011

Balance Sheet

31 December 2010

Note 2010 2009

£ 000 £ 000 £ 000 £ 000

Fixed assets 2 64,085 61,170

Current assets

Stock and work in progress 698 957 Debtors 3 4,702 4,942 Bank and cash 1,652 2,791

______ _____

7,052 8,690

Creditors Amounts falling due within one year

Creditors and accruals 4 (2,720) (2,667) Bank loans 6 (5,250) (3,650) Income tax  (210) (96)

______ _____

(8,180) (6,413)

Net current (liabilities) / assets (1,128)  2,277 _______ ______

Total assets less current liabilities 62,957 63,447

Creditors Amounts falling due after more than one year

Bank loans 6 (9,650) (11,250) Non-equity preference shares 9b (5,382) (5,382)

_______ _______

(15,032) (16,632)

Provisions for liabilities and charges

Deferred taxation 7 (5,356) (5,028)

________ _______ Net assets excluding pension liability 42,569 41,787

Pension asset / (liability) 8 388 (854)

________ _______

Net assets £__4____2__,__9__5__7__ £__4____0__,9__3__3__

Equity capital and reserves

Called up equity share capital 9a 483 483 Capital redemption reserve  124 124

________ _______

607 607 Share premium account 678 678 Reserves 10 41,672 39,648

________ _______

Shareholders funds 11 £__4____2__,__9__5__7__ £__4____0__,9__3__3__

The financial statements on pages 19 to 35 were approved by the Board of Directors on 8 April 2011 and were signed on its behalf by:

Kevin Keen Chairman

Profit and Loss Account

For the year ended 31 December 2010

Note 2010 2009

£ 000 £ 000 £ 000 £ 000

Turnover

Water supply charges 12 13,854 13,766 Rechargeable works income 475 640

Other income  323 322

_______ ______

14,652 14,728

Cost of sales

Pumping expenses (645) (748) Operation of reservoirs and works (2,406) (2,489) Distribution and analysis of water (1,716) (1,728) Desalination station expenses (212) (234) Miscellaneous  (326)  (375)

______ ______

(5,305) (5,574) Administration

Administration expenses 13 (2,464) (2,271) Insurances  (247)  (307)

______ ______

(2,711) (2,578) Depreciation

Completed works 2 (1,578) (1,577) Provision for impairment 2 - (422)

______ ______

(1,578) (1,999)

Expenditure (9,594) (10,151) _______ ______

Operating profit 5,058 4,577 Profit on disposal of fixed assets 93 638 Interest

- payable 14 (654) (646)

- receivable 10 37

Non-equity dividends 15 (381) (381)

Other finance income / (expense) 8 25 (140)

____ ____

(1,000) (1,130) _______ ______

Profit before taxation 4,151 4,085 Jersey income tax 5 (830)  (786)

_______ ______ Profit for the financial year __£__3__,__3__2__1__ £____3__,2__9__9__

Earnings per ordinary share of £1 17 £__6____.8__8__ __£__6__.8__3__

There is no material difference between the reported profit for 2010 and 2009 and the profit prepared on the historical cost basis.

The results for the current and prior year all relate to continuing operations.

Statement of Total Recognised Gains and Losses

For the year ended 31 December 2010

Note 2010 2009

£ 000 £ 000

Profit for the year 3,321 3,299 Gain / (loss) arising on pension liabilities 8 84 (471) Gain arising on revaluation of investment property 2 1,314 - Reversal of other deferred tax timing differences  7 -  (213)

_______ ______

Total recognised gains and losses for the year  __£__4__,__7__1__9__ __£__2__,6__1__5__

Cash Flow Statement

For the year ended 31 December 2010

Note 2010 2009

£ 000 £ 000 £ 000 £ 000

Net cash inflow from operating activities 18 5,756 4,142 Returns on investments and servicing of finance

Interest received 10 114

Interest paid (664) (640)

Non-equity dividends paid (381) (381)

____ ____

Net cash outflow from returns on

investments and servicing of finance (1,035) (907) Taxation

Jersey income tax paid (128) (501) Capital expenditure

Purchase of fixed assets (3,206) (3,455)

Disposal of fixed assets 169 708

______ _____

(3,037) (2,747)

Equity dividends paid (2,695) (1,444) _______ ______

Net cash outflow before use of liquid

resources and financing (1,139) (1,457)

Management of liquid resources

Net cash withdrawn from fixed deposit - 2,000 _______ ______

(Decrease) / increase in cash 19 __£__(1__,__1__3__9__) __£__ __5__4__3__

Reconciliation of net cash flow to movement in net debt

Note 2010 2009

£ 000 £ 000

(Decrease) / increase in cash (1,139) 543 Net cash withdrawn from fixed deposit - (2,000)

________ ________

Movement in net debt 19 (1,139) (1,457) Net debt brought forward 19 (17,491) (16,034)

________ ________

Net debt carried forward 19 __£__(1____8__,6____3__0__) __£__(1__7__,__4__9__1__)

Notes to the Financial Statements

1. Accounting policies

The following statements outline the main accounting policies applied in the preparation of the financial statements.

Basis of accounting

The financial statements are prepared under the historical cost convention as modified for the revaluation of investment properties and in accordance with United Kingdom accounting standards.

Going concern

The Company s business activities, together with the factors likely to affect its future development, performance and position and a summary of the financial position of the Company, its cash flows, liquidity position and borrowing facilities are described in the Business Review Section on pages 5 to 11 and in notes 6 and 19. The Company has considerable financial resources, a wide and varied customer base within Jersey, steady demand for its products and services and a stable and well established treatment and distribution network. The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future and have therefore selected the going concern basis in preparing the financial statements.

Turnover

Turnover represents the total value of water charges together with minor contracts and rental income. Income from minor contracts is recognised within turnover upon completion of the contracted works. Income arising on minor contracts to be provided in the future is treated as deferred income.

Stocks of water

In accordance with normal industry practice, no value is placed on stocks of water held within reservoirs, treatment works or the mains network.

Stock and work in progress

Stock and work in progress is valued at the lower of cost and net realisable value.

Water charges

Water is billed either as a fixed rate (in advance) or as a metered charge (in arrears). Both fixed rate and metered water income is recognised for the year up to 31 December.

Fixed assets and depreciation

Fixed assets under construction are recognised within

 Uncompleted Works until such time as they are first brought into use. At this point the asset is transferred to Property

and Completed Works and depreciation commences. Subsequent qualifying expenditure is transferred directly to

 Property and Completed Works .

Depreciation is charged on a straight line basis in accordance with the rates of depreciation set out below for each major asset type. No depreciation is provided on freehold land.

Asset type   Depreciation period

Water mains  - Ductile Iron  80 years

- Others  50 years

Buildings  30-100 years Impounding reservoirs & dams  60-100 years Pumping plant  10-40 years Reinforced concrete structures  100 years Water Meters   10 years Motor vehicles  5-8 years Mobile plant and tools  3-10 years Reverse osmosis membranes 10 years

Investment property

Certain of the Company s properties originally acquired for business purposes, or otherwise used within the business, are no longer so used and are now held for investment purposes. These properties are treated as investment properties and accounted for in accordance with Statement of Standard Accounting Practice 19, Accounting for Investment Properties, and are included in the balance sheet at open market value. The surplus or deficit on revaluation is taken to the revaluation reserve. No depreciation is provided in respect of freehold investment property.

Deferred taxation

Deferred taxation is calculated on a full provision basis

in accordance with Financial Reporting Standard 19

 Deferred Taxation . As permitted under Financial Reporting Standard 19, deferred tax balances are not discounted to reflect the time value of money.

Retirement benefits

The Company values its liability in respect of defined retirement benefits in accordance with FRS 17 and following the projected unit cost method of calculation.

Any surplus or deficit in the defined benefit plan, being the difference between the value of the plan assets and the present value of the plan liabilities, is recognised in the balance sheet as an asset or liability to the extent that

any surplus is recoverable through future reduced contributions or that, conversely, any deficit reflects a legal or constructive obligation. The defined benefit

asset or liability is shown net of any related deferred tax liability or asset.

Cash at Bank and liquid resources

Included within liquid resources in the cash flow statement are cash balances held on fixed deposit for a term of one month or greater. These items are included within Bank and cash in the balance sheet.

Notes to the Financial Statements - continued

2. Fixed assets

Property and  Freehold  Uncompleted   Motor vehicles,   Total

completed   investment  works mobile plant &

works property equipment

£ 000 £ 000 £ 000 £ 000 £ 000

Cost

Brought forward  83,730 105 2,136 85,971 Additions 3,095 106 259 3,460 Disposals (57) (392) (449) Transfers 75 21 (96) - - Surplus on revaluation - 1,314 - -  1,314

________ _______ _____ _______ ________

Carried forward £86,843 £1,335 £115 £2,003 £90,296

________ _______ _____ _______ ________

Depreciation

Brought forward (23,201) - - (1,600) (24,801) Charge for the year (1,578) - - (242) (1,820) Disposals 28  -  - 382 410

________ _______ _____ _______ _________

Carried forward £(24,751) £ - £ - £(1,460) £(26,211)

________ _______ _____ _______ _________

Net book value

Brought forward __£__6__0__,__5__2__9__ __ __ __ __ __£__ __- __£__1__0__5__ __£__5__3__6__ __£__6__1____,1__7__0__

Carried forward __£__6__2__,__0__9__2__ __£__1__,__3__3__5__ __£__1__1__5__ __£__5__4__3__  __£__6__4__,__0__8__5__

Of the £1,820,000 depreciation charge for the year, £242,000 relating to motor vehicles, mobile plant and equipment has been allocated to various cost centres included within the Cost of Sales and Administration expense categories in the Profit and Loss Account.

At 31 December 2010 capital commitments contracted for amounted to £NIL (2009: £50,000). Provision for impairment

In 2002, the Company constructed a standby water quality improvement plant to enhance the quality of raw water collected from the Le Mourier catchment area through the use of reverse osmosis and ultra-filtration. Whilst the plant remains operational, changes in the Company s water capture, transfer and treatment processes since 2002 have reduced the likelihood of the use of the standby plant in the future. As a result of the consequent impairment review a charge for impairment of £422,000 was recognised in 2009, writing off the remaining net book value of the plant.

Market value of freehold investment properties

In 2010, the Company reclassified two freehold residential properties that are no longer held for use within the business as investment properties. The properties, which had a combined net book value of £21,000, were revalued as at

31 December 2010 at £1,335,000.

The freehold investment properties were valued by an external valuer, CB Richard Ellis Limited, on the basis of open market value in accordance with the requirements of the RICS Appraisal and Valuation Standards.

Notes to the Financial Statements - continued

3. Debtors

2010 2009

£ 000 £ 000

Trade debtors 3,538 3,836 Prepayments 376 394 Accrued income and other debtors 788 712

_______ ______

__£__4__,__7__0__2__ £__4____,9__4__2__

4. Creditors and accruals

2010 2009

£ 000 £ 000

Trade creditors 698 509 Other creditors 422 340 Contract retentions - 8 Accruals and deferred income 1,600 1,810

_______ ______

__£__2__,__7__2__0__ £__2____,6__6__7__

5. Jersey income tax

2010 2009

£ 000 £ 000

Current tax

Income tax on the profit for the year 500 531 Under provision for previous years 2 -

_____ ____

Total current tax 502 531 _____ ____

Deferred tax

Charge for the year 328 255 _____ ____

Total deferred tax 328 255 _____ ____

Total tax charge for the year __£__8__3__0__ £__7__8__6__

Notes to the Financial Statements - continued

Factors affecting tax charge for year

The tax assessed for the year is lower than the standard rate of Jersey income tax (20%) applicable to utility companies. The differences are explained below:

2010 2009

£ 000 £ 000

Profit before tax __£__4____,1__5__1__ £__4____,0__8__5__

Profit before tax multiplied by the standard rate of Jersey income tax of 20%  830 817 Tax at 20% on:

Capital allowances for period in excess of depreciation (164) (175) Capital expenditure, deductible for tax purposes (223) (143) Profit on sale of fixed assets (19) (128) Dividends on non-equity shares - Non deductible 76 76 Provision for impairment of fixed assets -  84

_____ _____

Current tax charge for year __£__5__0__0__ __£__5__3__1__

6. Bank loans

Repayment Dates 2010 2009

£ 000 £ 000

Facilities drawn down

HSBC Bank plc 2010 - 3,650 HSBC Bank plc 2011 5,250 5,250 HSBC Bank plc 2013 6,000  6,000 HSBC Bank plc 2015  3,650 -

________ _______

__£__1__4__,__9__0__0__ £__1__4__,__9__0__0__

Loans falling due within one year 5,250 3,650 Loans falling due between one and two years - 5,250 Loans falling due after two years but less than five years  9,650  6,000

________ _______

__£__1__4__,__9__0__0__ £__1__4__,__9__0__0__

The Company has a rolling overdraft facility with HSBC Bank plc. Unconditional guarantees have been given by the States of Jersey for the repayment of the principal and interest on loans up to a maximum of £16.2m taken out to fund the Company s capital works programme.

Subsequent to the year end, the facility for £5,250,000 due for repayment in 2011 was renewed for a further period of ten years and is now due for repayment in 2021.

Notes to the Financial Statements - continued

7. Deferred taxation

2010 2009

£ 000 £ 000

Accelerated capital allowances 5,356 5,028 _______ ______

Net liability £5,356 £5,028 ______________ ____________

Brought forward 5,028 4,560 Amounts charged in the profit and loss account 328 255 Amounts charged in the statement of total recognised gains and losses - 213

_______ ______

At 31 December __£__5__,__3__5__6__ £__5____,0__2__8__

8. Pensions

The Company operates two formal pension schemes; a defined contribution scheme and a defined benefit scheme. There are also certain past employees whose pension or pension supplements, which are of a defined benefit nature, have not been funded by the Company s present or previous pension agreements (the unfunded scheme ). Where applicable, the liability of the Company in respect of the unfunded scheme is included within the disclosure below relating to the defined benefit section. The defined benefit section of the scheme was closed to new entrants with effect from 1 January 2003.

The defined contribution scheme and defined benefit scheme are both sections of The Jersey Water Pension Plan. Defined contribution section

The defined contribution section of the plan was opened to new members on 1 May 2003. Employer contributions during the period to 31 December 2010 totalled £53,000 (2009: £54,000).

Defined benefit section and unfunded scheme

The full FRS17 actuarial valuation as at 31 December 2010 shows an improvement from the 2009 deficit of £854,000 to a surplus of £388,000 in 2010.

The major assumptions used by the actuary were:

2010 2009 Rate of increase in salaries 4.69% 4.94% Rate of increase in pensions accrued after 1 January 1999 3.39% 3.50% Discount rate 5.47% 5.80% Expected return on plan assets 5.78% 6.18% Inflation assumption 3.69% 3.94% Life expectancy assumptions

Current pensioners at 65 - Male 86 86 Current pensioners at 65 - Female 88 88 Future pensioners at 65 - Male 87 87 Future pensioners at 65 - Female 89 89

The post-retirement mortality assumptions allow for expected increases in longevity.

The overall expected rate of return is based on the weighted average return of each class of asset at the start of each accounting period.

Notes to the Financial Statements - continued

2010 2009

£ 000 £ 000

Reconciliation of the present value of scheme liabilities

Opening scheme liabilities 15,383 13,508 Current service cost 249 230 Employee contributions 92 113 Interest cost 887 828 Actuarial losses 534 1,769 Past service costs 17 248 Gains on curtailment - (782) Benefits paid (864) (531)

________ _______

Closing scheme liabilities __£__1__6__,__2__9__8__ £__1__5____,3__8__3__

Analysis of funded and wholly unfunded scheme liabilities

Funded scheme 16,191 15,263 Wholly unfunded scheme 107 120

________ _______

Total present value of scheme liabilities __£__1__6__,__2__9__8__ £__1__5____,3__8__3__ Reconciliation of the fair value of scheme assets

Opening fair value of scheme assets 14,316 12,188 Expected return 912 688 Employer contributions 1,671 926 Employee contributions 92 113 Actuarial gains 640 914 Benefits paid (848) (513)

_______ _______

Closing fair value of scheme assets £16,783 £14,316

______________ ______________ Actual return on scheme assets £1,552 £1,602

______________ ______________

Analysis of amounts shown in the balance sheet

Fair value of plan assets 16,783 14,316 Present value scheme liabilities (16,298) (15,383)

_______ _______

Surplus / (deficit) 485 (1,067) Related deferred tax (liability) / asset (97) 213

_______ _______

Net surplus / (deficit) ______£__3__8__8__ ____£__(__8__5__4__)

Notes to the Financial Statements - continued

2010 2009

£ 000 £ 000

Analysis of amounts recognised in the profit and loss account

Current service cost (249) (230) Expected return on pension plan assets 912 688 Interest on pension plan liabilities (887) (828) Past service cost (17) (248) Curtailments - 782

_____ _____

Total £__(__2__4__1__) __£__1__6__4__

Current service costs, past service cost and curtailments are included within administration expenses in the profit and loss account. Expected returns on pension plan assets and interest on pension plan liabilities are shown net within other finance income in the profit and loss account.

2010 2009

£ 000 £ 000

Analysis of amounts recognised in the statement of total recognised gains and losses

Actual return less expected return on pension scheme assets

Experience gains / (losses) arising on scheme liabilities

Changes in assumptions underlying the present value of scheme liabilities

Actuarial gain / (loss) recognised in the statement of total recognised gains and losses Current tax relief

Movement in deferred tax relating to net asset / liability

Gain / (loss) recognised in the statement of total recognised gains and losses

Cumulative amounts recognised in the statement of total recognised gains and losses

640 914

90 (310)

(624) (1,459) _____ _____

106 (855) 288 435

(310) (51) _____ _____

__£____8__4__ __£__(__4__7__1__)

__£__(__3__,__1__5__3__) £__(__3__,2__3__7__)

Analysis of scheme assets 2010 2009

% of total  % of total fair value  fair value

of scheme   of scheme

assets assets

Equities 43% 46% Property 8% 8% Corporate bonds 42% 43% Cash and receivables 7% 3%

_____ _____

1__0____0__%__ 1__0____0__%__

Notes to the Financial Statements - continued

History of experience gains and losses

2010

£ 000

Present value of scheme assets 16,783 Present value of scheme liabilities (16,298)

________

Gross scheme surplus / (deficit) ______£____4__8__5__

2009 2008 2007 2006

£ 000 £ 000 £ 000 £ 000

14,316 12,188 14,191 12,514

(15,383) (13,508) (13,966) (15,043) _______ _______ _______ _______

£(1,067) £(1,320) £225 £(2,529) ______________ ______________ ______________ ______________

Experience gains / (losses) on scheme liabilities

Amount

Difference between the expected and actual return on scheme assets

Amount

Funding of the defined benefit pension scheme

90 (310) 185 640 914 (3,013)

241 290 (288) (22)

The actual funding of the defined benefit pension scheme is determined by the triennial actuarial valuation and this differs from the amount that is required to be charged to the profit and loss account under Financial Reporting Standard 17. During the year, the Company made scheduled retirement benefit contributions into the defined benefit scheme totalling £671,000 (2009: £926,000) and special contributions of £1,000,000 (2009: £Nil).

Following the results of the latest actuarial valuation as at 1 January 2009, the contribution rate for 2009, 2010 and 2011 was set at 9.9% of Pensionable Salaries plus £445,000 per annum, of which £445,000 represents contributions to reduce the scheme deficit.

9. Share capital

1. Equity share capital

2010 2009

£ 000 £ 000

Authorised

252,000 ordinary shares of £1 252 252 231,000 A ordinary shares of £1 231 231

_____ _____

__£__4__8__3__ __£__4__8__3__

Issued and fully paid

252,000 ordinary shares of £1  252 252 231,000 A ordinary shares of £1  231 231

_____ _____

__£__4__8__3__  __£__4__8__3__

Ordinary and A ordinary shares carry no right to fixed income and rank after preference shares and other liabilities. Each ordinary share carries one vote in the event of a poll. Each A ordinary share, whilst in the ownership of the States of Jersey, entitles the holder to such additional votes at a poll as brings the total number of votes attaching to the

 A ordinary shares to twice the number of votes cast in respect of all other shares.

Notes to the Financial Statements - continued

2. Non-equity preference share capital

2010 2009

£ 000 £ 000

Authorised

20,000 cumulative preference shares of £5 100 100 20,000 cumulative second preference shares of £5 100 100 100,000 cumulative third preference shares of £5 500 500 100,645 cumulative fourth preference shares of £5 503 503 900,000 cumulative fifth preference shares of £5 4,500 4,500

_______ ______

__£__5__,__7__0__3__ £____5__,7__0__3__

Issued and fully paid

17,261 5% cumulative preference shares of £5  86 86 17,402 3.5% cumulative second preference shares of £5  87 87 23,509 3% cumulative third preference shares of £5  118 118 16,036 3.75% cumulative third preference shares of £5  80 80 11,400 5% cumulative third preference shares of £5  57 57 90,877 2% cumulative fourth preference shares of £5  454 454 900,000 10% cumulative fifth preference shares of £5  4,500 4,500

_______ ______

__£__5__,__3__8__2__  £__5____,3__8__2__

Preference shares bear interest at the rates indicated above and rank, in the order listed, above ordinary and A ordinary equity shares in the event of winding up.

Upon a poll, every holder of a preference share present at a general meeting in person or by proxy shall have one vote only for all the preference shares held by him, irrespective of the number and class of such preference shares.

10 Reserves

Revaluation  Retained  Total

reserve  profit

£ 000 £ 000 £ 000

Brought forward  - Profit for the financial year - Surplus on revaluation of investment properties in year 1,314 Equity dividends  - Gain relating to pension plan recognised in the statement

of total recognised gains and losses ______ _-

Carried forward £____1__,__3__1__4__

39,648 39,648 3,321 3,321

- 1,314

(2,695) (2,695)

____ _ _8_4_ __ _ _ _ _8_4_

£____4__0__,__3__5__8__ __£__4__1__,__6__7__2__

Notes to the Financial Statements - continued

11 Reconciliation of movement in equity shareholders' funds

2010 2009

£ 000 £ 000

Profit for the year 3,321 3,299 Equity dividends (2,695) (1,444)

________ _______

Retained profit for the year 626 1,855 Gain / (loss) arising on pension plan 84 (471) Reversal of other deferred tax timing differences - (213) Surplus on revaluation of investment properties in year 1,314 - Opening equity shareholders funds 40,933 39,762

________ _______

Closing equity shareholders funds __£__4__2__,__9__5__7__ £__4__0____,9__3__3__

12 Water supply charges

2010 2009

£ 000 £ 000

Measured water charges 7,465 6,874 Unmeasured water charges 5,772 6,262 Service charges and other charges for water 617 630

________ _______

__£__1__3__,__8__5__4__ £____1__3__,7__6__6__

13 Administration expenses

2010 2009

£ 000 £ 000

Included in administration expenses are the following:

Reorganisation costs  - (633) Gains on pension curtailment (note 8) __ _ _- _7_8_2_

Net gain on reorganisation - 149 Directors fees (note 20) (80) (105) Auditors fees - Statutory audit (40) (34)

- Other services (Tax compliance) (2) (4)

- Other services (Pension scheme audit) (9) (8)

14 Interest payable

2010 2009

£ 000 £ 000

On loans and overdrafts from banks __£__6__5__4__ __£__6__4__6__

Notes to the Financial Statements - continued

15 Non-equity dividends

2010 2009

Paid Payable Charge  Paid Payable Charge

for the year for the year

£ 000 £ 000 £ 000 £ 000 £ 000 £ 000

5% cumulative preference shares 2 2 4 2 2 4 3.5% cumulative second preference shares 2 1 3 2 1 3 3% cumulative third preference shares 3 - 3 3 - 3 3.75% cumulative third preference shares 2 - 2 2 - 2 5% cumulative third preference shares 2 - 2 2 - 2 2% cumulative fourth preference shares 7 - 7 7 - 7 10% cumulative fifth preference shares 360 - 360 360 - 360

_____ ___ _____ _____ ___ _____

Treoctaolg dnivisideden ind sth oen y neoa nr -equity shares  __£__3__7__8__  __£__3__  __£__3__8__1__  __£__3__7__8__ __£__3__ __________ £381

16 Equity dividends

Ordinary and A ordinary shares 2010

Dividends paid

Final dividend for the previous year £2.14 Special dividend for the previous year £2.28 Interim dividend for the current year £1.16

______

__£__5__.__5__8__

2009 2010 2009

£ 000 £ 000

£1.94 1,034 937

- 1,101 -

£1.05 560 507 _____ _______ ______

£____2__.9__9__ £____2__,__6__9__5__ £____1__,4__4__4__

Dividends proposed

Final dividend for the current year £2.24 £2.14 1,082 1,034 Special dividend for the current year - £2.28 - 1,101

______ _____ _______ ______

__£__2__.__2__4__ __£__4__.4__2__ __£__1__,__0__8__2__ __£__2__,1__3__5__

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in the financial statements.

17 Earnings per ordinary share

The calculation of earnings per ordinary share of £1 is based on earnings of £3,321,000 (2009: £3,299,000), being the profit available for distribution to equity shareholders and 483,000 ordinary and A ordinary shares of £1 in issue.

Notes to the Financial Statements - continued

18 Reconciliation of operating profit to net cash flow from operating activities

2010 2009

£ 000 £ 000

Operating profit 5,058 4,577 Depreciation 1,820 1,913 Provision for impairment - 422 Change in order to bring pension charges onto a contribution basis (1,422) (1,248) Decrease in stock and work in progress 259 153 Decrease / (increase) in debtors 222 (391) Decrease in creditors (181) (1,284)

_______ ______

Net cash inflow from operating activities __£__5__,__7__5__6__ __£__4__,1__4__2__

19 Analysis of changes in net debt

At 1 January 2010

£ 000

Total bank and cash per balance sheet 2,791 Debt due within one year (3,650) Debt due after one year (16,632)

_________

Total __£__(__1__7__,__4__9__1__)

Cash Flows  Other Changes

£ 000 £ 000 (1,139) -

- (1,600)

- 1,600

________ ______

__£__(__1__,__1__3__9__) __________£__-

At 31 December

2010

£ 000 1,652

(5,250)

(15,032) ________

£__(__1__8__,__6__3__0__)

20 Directors emoluments

1 For the year ended 31 December 2010 the Company s contribution in respect of Howard Snowden s pension was £10,403. 2 For the year ended 31 December 2010 the Company s contribution in respect of Helier Smith s pension was £10,440.

Benefits for Mr Snowden consist of full expenses for the use of a motor car, private health care and prolonged disability and death in service insurance. Benefits for Mr Smith consist of motor fuel, private health care and prolonged disability and death in service insurance. With effect from 1 January 2010, neither Mr Snowden nor Mr Smith receives separate fees for their services as Directors, their remuneration being deemed part of their salary. During 2010, a discretionary executive director bonus scheme was established for Mr Snowden and Mr Smith.

Notes to the Financial Statements - continued

21 Related party transactions

The Company has identified the following material related party transactions:

Counterparty Value of goods & Value of goods & Amount due to   Amount due by services supplied   services purchased   Jersey Water Jersey Water

by Jersey Water by Jersey Water

2010 2009 2010 2009 2010 2009 2010 2009

£ 000 £ 000 £ 000 £ 000 £ 000 £ 000 £ 000 £ 000

The States of Jersey 2,196 1,846 69 66 463 525 1 1 Jersey Electricity Plc 82 78 806 834 16 28 61 74 JT Group Limited 20 7 52 57 2 3 4 4 Jersey Post International Limited 8 8 77 73 2 2 - 1

The States of Jersey is the Company s majority and controlling shareholder. Jersey Electricity Plc is majority owned and controlled by the States of Jersey. JT Group Limited and Jersey Post International Limited are both wholly owned by the States of Jersey. All transactions are undertaken on an arm s length basis.

In addition to the transactions included above with the States of Jersey, the Company made payments of income tax, social security, GST, water resource licence fees and other statutory payments.

The Company leases the site of the La Rosiere Desalination Plant from the States of Jersey on a 99 year lease ending in 2067. Under the terms of the lease, the rental, which for 2010 was £25,000 (2009: £25,000) increases every five years in line with the movement on the Jersey Retail Price Index.

22 Post balance sheet events

Subsequent to the year end the Company entered into two contracts totalling £1.6 million for the lining of the upstream face of the dam at Val de La Mare with a water proof membrane in 2011.

23 Ultimate controlling party

The ultimate controlling party of The Jersey New Waterworks Company Limited is the States of Jersey.

Five Year Summary

Units 2010 2009 20081 20071 2006

Balance sheet

Equity shareholders funds £ 000 42,957 40,933 39,762 38,569 35,306 Net debt £ 000 18,630 17,491 16,034 18,023 20,009

Profit and loss account

Turnover £ 000 14,652 14,728 14,378 13,817 13,492 Operating profit £ 000 5,058 4,577 4,472 4,498 3,865 Profit before tax £ 000 4,151 4,085 4,034 3,526 3,130 Profit for the financial year £ 000 3,321 3,299 4,030 3,253 2,703 Equity dividends paid2 £ 000 1,594 1,444 1,256 1,124 1,070

Financial statistics & ratios

Capital expenditure £ 000 3,460 3,309 2,980 2,546 2,970 Net cash inflow / (outflow) £ 000 (1,139) 543 (11) 1,986 550 Earnings per share £ 6.88 6.83 8.34 6.73 5.60 Dividend cover2 Times 2.1 2.3 3.2 2.9 2.52 Interest cover Times 5.0 5.1 4.1 3.7 3.55 Gearing3 % 47 50 51 53 57

Operational statistics

Total water supplied Ml 7,220 7,253 7,402 7,182 7,484 Maximum daily demand Ml 25.8 25.7 26.2 25 29 Annual rainfall mm 982 843 1,042 915 782 New mains laid km 1.7 3.1 4.6 5.6 6.5 Mains re-laid / relined km 2.7 1.8 2.8 2.0 2.1 New connections No 337 412 508 453 1,001 Live unmeasured supplies 000 21 23.8 25.2 26.1 26.6 Live metered connections 000 16.2 13.2 11.2 10.6 9.8 Employees No 84 80 107 107 107

Water quality

% Compliance with water quality parameters 99.86% 99.84% 99.97% 99.86% 99.97%

1 Relevant figures have been restated to show the effect of the prior year adjustment made in 2009 2 Equity dividends and the calculation of dividend cover exclude the special dividend paid in 2010 3 Gearing = Debt (including preference share capital) / equity shareholders funds

Mulcaster House, Westmount Road, St. Helier , Jersey, JE1 1DG

Telephone: 01534 707300 Facsimile: 01534 707400

Email: info@jerseywater.je Website: www.jerseywater.je

Jersey Water is the trading name of

The Jersey New Waterworks Company Limited.