Jersey New Waterworks Company Ltd.: Annual Report and Financial Statements 2017

Annual Report and Financial Statements

The Jersey New Waterworks Company Limited

Contents

Directors, Officers and Advisers  page 02 Chairman s Statement  page 04 Strategic Review  page 08 Corporate Governance  page 28 Directors Report  page 34 Directors Statement  page 36 Auditor s Report  page 38 Financial Statements  page 40 Five Year Summary  page 60

Board of Directors

Board

of Directors

Non-Executive

Chairman  Senior Independent   Mary Curtis  Tim Herbert Peter Yates  Director MA, Chartered FCIPD, CDir MA (Oxon)

BSc, FCA Tony Cooke

BA (Hons) Econ, CEnv, FCIWEM, HIWater

Stephen Kay   Heather MacCallum   Daragh McDermott  

BSc (Eng), CdipAF, MICE,  BA,CA BBS, FCA, FCIS, GDL, CDir MCIWEM, MIWater

Executive Officers and Advisers

Chief Executive Helier Smith

BA (Hons), FCA, CDir, MIWater, FCMI

Finance Director Natalie Passmore  

MA (Hons), ACA, CMgr MCMI, Dip IoD (appointed 11 May 2017)

Secretary Louisa McInnes

TEP

(appointed 11 May 2017)

Natalie Passmore

MA (Hons), ACA, CMgr MCMI, Dip IoD

(resigned 11 May 2017)

Independent Auditor

Deloitte LLP GaspØ House 66-72 Esplanade St Helier

Jersey, JE2 3QT

Registered Office

Mulcaster House Westmount Road St Helier

Jersey, JE1 1DG

Annual Report and Financial Statements 2017

Peter Yates BSc, FCA Stephen Kay BSc (Eng), CdipAF, MICE, MCIWEM, MIWater

Peter Yates was appointed to the Board in May 2009.

Peter, a Chartered Accountant, was previously a partner of Price waterhouseCoopers working in the United Kingdom and Jersey for over thirty-one years. He is a Non-Executive Director and Chairman of the Audit Committee of Invesco Perpetual Enhanced Income Fund Plc and a Non-Executive Director of Standard Bank Offshore Group Limited and Standard Bank Jersey Limited. The role includes being a member of the Standard Bank Offshore Risk Committee and he also acts as Chairman of the Standard Bank Offshore Board Audit Committee.

Peter is Chairman of the Board and chairs the Nomination Committee.

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

Tony Cooke became a Non-Executive Director of the Company in June 2008. Tony 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. Tony is a Trustee of Utilities and Service Industries Training Ltd, a Trustee of a pension fund and an independent utilities consultant.

Tony is the Board s Senior Independent Director and is a member of the Audit and Nomination Committees.

Mary Curtis MA, Chartered FCIPD, CDir

Mary Curtis joined the Board as a Non-Executive Director

in June 2008. Mary 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 (now Deloitte LLP) and then Director of Human Resources at Mourant du Feu

& Jeune (now Mourant Ozannes). She is a Trustee for the Durrell Wildlife Conservation Trust.

Mary chairs the Remuneration Committee and is a member of the Nomination Committee.

Tim Herbert MA (Oxon)

Tim Herbert was appointed to the Board in January 2015

as a Non-Executive Director. Tim is a Jersey Advocate.

He was a partner at Mourant Ozannes for over 25 years including a term as Managing Partner and since July 2012 has been retained as a consultant to the firm. He had a broad commercial practice and now holds a number of other positions in the community.

Tim is a member of the Remuneration Committee and the Nomination Committee.

Stephen Kay, a Chartered Engineer, joined the Board as

a Non-Executive Director in April 2013. Stephen is a Non- Executive Director of South Staffordshire Water Plc and was previously Managing Director of Cambridge Water Plc. He is Chairman of the Water UK Standards Board and Chairman of the Water Regulations Advisory Scheme (WRAS). Stephen is a Trustee of the Water Companies Pension Scheme.

Stephen is a member of the Audit Committee and the Nomination Committee.

Heather MacCallum BA, CA

Heather MacCallum was appointed to the Board in October 2016 as a Non-Executive Director. Heather, a Chartered Accountant, was a partner of KPMG Channel Islands from 2001 until retiring in September 2016. She was with KPMG s financial services practice in the Channel Islands for 20 years, gaining a broad range of experience from companies with a premium listing on the London Stock Exchange through to private investment vehicles. She is a Non-Executive Director of Kedge Capital Fund Management Limited and also Blackstone/GSO Loan Financing Limited.

Heather chairs the Audit Committee and is a member of the Nomination Committee.

Daragh McDermott BBS, FCA, FCIS, GDL, CDir

Daragh McDermott was appointed to the Board in October 2016 as a Non-Executive Director. Daragh is the Corporate Affairs Director of JT Group Limited, prior to which he qualified as a Chartered Accountant with KPMG, Ireland, and worked

for Price waterhouseCoopers, Management Consultants, London. Daragh is a Chartered Director and also holds a number of additional positions on the Island, which include being a Board Trustee for Autism Jersey and an independent member of the States of Jersey Audit Committee.

Daragh is a member of the Audit Committee and Nomination Committee.

Natalie Passmore MA (Hons), ACA, CMgr MCMI, Dip IoD

Natalie Passmore was appointed to the Board as Finance Director in May 2017 after joining the Company in 2010 where she held the position of Financial Controller and most recently Chief Financial Officer. She previously worked in a number of commercial roles in Jersey and overseas. Natalie

is a Chartered Accountant, Chartered Manager and holds a Diploma in Company Direction from the Institute of Directors.

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

Helier Smith was appointed to the Board as Finance Director in October 2003 after joining the Company in 2002. Since April 2015, Helier has held the position of Chief Executive. He was previously employed by KPMG in the UK and Jersey where he worked for 11 years in the manufacturing, distribution and finance sectors. Helier qualified as a Chartered Director in 2010 and became a Fellow of the Chartered Management Institute in 2012.

03

Chairman s Statement

From a water supply perspective 2017 turned out to  Operationally, 2017 was a successful year. We saw

be unusual in many respects. We started the year with  consumption of water fall by 3.2%, principally due to a reservoir levels at their lowest since 2001 and saw  reduction in leakage of approximately 14% on the prior year. an unusually dry start to the year. This had profound  In 2017, we invested a total of £3,275k (2016: £4,589k) in effects on raw water quality during the year; nitrate  our capital expenditure programme which included laying levels in water were at their lowest levels ever and we  2.1km of replacement mains, installing 1.9km of new mains saw half the number of pesticide breaches in streams  extensions, investing £475k in water quality improvement and reservoirs. The rest of the year was more in line  and resource initiatives and adding 303 connections to the with expectations, treated water quality remained  network. We continue to invest in our infrastructure and 2018 consistently high and as a result of an exceptionally  will see the development of a live distribution network model wet summer and early winter resources recovered  that will, over time, enable the use of technology to manage from the 15 year low to the extent that we finished  leakage, pressures and water quality throughout our 580km 2017 with nearly full reservoirs.  of pipework.

Financially Jersey Water also had a good year. Turnover for the year increased by 1.5% to £15,960k. Operating costs for the year increased by 3.9% to £11,108k. The additional expenditure of £412k was lower than budgeted and expected given our focus on managing water quality and other risks. Operating profit for the year totalled £4,852k (2016: £5,024k) and overall profit for the year was £3,296k, a small decrease of £38k or 1.1% on the previous year (2016: £3,334k).

In 2015, we began the £6.6 million upgrade of the desalination plant, increasing the capacity of the plant from 6.4Ml/day to 10.8Ml/day and improving the energy efficiency by 36%. During 2017, final commissioning works were completed by the contractor and in May 2017, takeover

tests were passed, subject to the resolution of a number of matters. The remaining contractual performance tests, which will mark the completion of the project, are scheduled to take place during 2018.

In 2017, we laid 2.1km of replacement mains, installed

1.9km of new mains extensions and added 303 connections to the network.

Water quality during 2017 continued to be very good,  I can report that following regulatory approval, the

with an overall compliance rate of 99.98% (2016:  purchase was successfully completed in February 2018. 99.99%). This was the fourth consecutive year during  Whilst only a modest acquisition in terms of size, the which nitrates in treated water remained within regulatory  business will provide an opportunity to expand the range limits and we remained fully compliant with all of the  of services provided by Jersey Water, increase our water regulatory parameters for pesticides, including oxadixyl.  supply resilience and add financial value.

We continue to work closely with the States of Jersey  Steady profit and an improvement in the Company s Environment Department and the Farming Community  pension scheme funding position of £2,706k contributed through the Action for Cleaner Water group. We  to 7.6% or £3,823k growth in net assets to £53,805k (2016: welcomed a number of voluntary initiatives by farmers  £49,978k). This places the Company in a strong position

to reduce the volume of nitrates and restrict the use  as we plan further investment initiatives to maintain

of pesticides in Jersey Water catchments. Nitrates in  water quality, reduce leakage, extend the network, as

both untreated and treated water during 2017 were at  well as ongoing maintenance of our systems, reservoirs, lower levels than 2016 and there were fewer incidents of  treatment works and mains network.

pesticides in untreated water than during 2016. These

Your Board is pleased to be positive results will also have

recommending a final dividend been as a consequence

for 2017 of 13.932 pence per

of the unusually low

growing period. Sustained improvements over a number  and treated water during  scahotatnhrseeid(feoprratphtsico on) m faoinnr dgs haAapnrpenrhuooavl lad le r rainfall during the 2017  Nitrates in both untreated

of years (of all-weather types) will be needed before the  2017 were at lower levels  Gadednietiroanl Mtoetehteinign.t eTrhimis disiviind end effectiveness of the initiatives can be assessed. In 2017the States of Jersey made ,  were fewer incidents of  odyefe a6cr.l.a9Tr2eh2dep ateonntdac lep d aweidchl iacd rhue rdwin aagsn t dhe

than 2016 and there

amendments to the W(Jersey) Pollution Law 2005 ater  pesticides in untreated  pisr o2p0o.8s5e4d p dpivsi,daenn dinfcorre a2s0e1 7o f

to introduce the regulatory measures necessary to  water than during 2016. 22.05.%34 5o np tphse. 2016 dividend of protect catchments from  The Company continues to

diffuse nitrate pollution as  support the market for Jersey

set out in the Water Plan for  Water shares through its

Jersey. We welcome these changes and look forward  sponsorship of an over the counter share trading scheme

to a prompt implementation of catchment orders, the  operated by Jersey stockbrokers, LGT Vestra (Jersey) appointment of a States of Jersey Catchment Officer  Limited. Willing buyers and sellers of Jersey Water shares and an update of the Pesticides (Jersey) Law 1991,  register their details and are then matched when shares

all included as actions within the plan for 2017/18. In  become available. In 2017 there were 14 trades in equity addition to our work with external stakeholders, we also  shares and 3 trades in preference shares of the Company. made progress on a number of internal water quality

initiatives including planning for the reservoir bypass at  At the 2018 AGM in MayMary Curtis , Tony Cooke and myself, it will be the turn of T, Peter Yates, to retire im Herbert, Val de la Mare, the installation of water quality monitoring  by rotation. Mary and I have both served on the Board

equipment and enhancements to our water quality  for a total of more than nine years and as such will each policies and processes. seek re-election for a term of one year. Tim will seek re-

We were very pleased to announce the agreement to  election for a term of three years. Tony has indicated that purchase the water tankering business, De La Haye  he will retire from the Board at the 2018 AGM and not Plant Limited, towards the end of 2017.  seek re-election.

Annual Report and Financial Statements 2017

Tony was our first Non-Executive Director appointed from  within the UK water sector. During his 10 years on the Board,  he has held the position of Senior Independent Director and  member of the Audit Committee and has made a significant  contribution to the development of the Company. We have  benefited a great deal from his extensive knowledge and  expertise in the water sector, his wide ranging commercial  experience and sound advice. The water industry sector  knowledge of our UK based Non-Executive Directors has  proved invaluable and in the last quarter of 2017 we started  

the formal process of recruiting a new Non-Executive Director  from the UK water industry to succeed Tony. We have  identified a successor for Tony who will seek election to the  Board at the AGM. Mike Pocock is Director of Asset Strategy  of Affinity Water and is a chartered civil engineer with over  forty years experience in the water industry with Affinity Water  and predecessor companies, Veolia and Three Valleys Water.  He will make a fine addition to your Board and I look forward  to welcoming him.

Jersey Water s long term prosperity and success depends  almost entirely on the hardworking and diligent team of  people who work for the Company. In return, one of our key  objectives is to ensure that Jersey Water is a great place  

for them to work, providing safe, interesting and fulfilling  employment. We were once again delighted with the results  of our third employee engagement survey which showed  

an overall engagement score of 89%, well above the  benchmark reference. We have further initiatives planned to  support workplace communication and engagement and  look forward to our triennial assessment for Investors in  People during 2018.  

Finally, I would like to thank my fellow directors, the  leadership team and colleagues throughout the business,  One of our key objectives is

for their significant and ongoing contribution to the

Company s success. 2017 was another very busy year  to ensure that Jersey Water is across all departments as we pushed ahead in delivering

our business plan, operational improvements and capital  a great place for staff to work, expenditure programme; all the while maintaining high

standards of water quality and ensuring our customers  providing safe, interesting continue to receive the great customer service that they

have grown to expect. All of this could not have been  and fulfilling employment. achieved without the hard work and loyal commitment of

the whole team at Jersey Water.

Peter Yates  Chairman

15 March 2018  

Strategic  Review

Our objectives

Jersey Water s vision statement is To be a great Island community water provider and our mission is simply to provide safe, high quality water for Jersey. We achieve this by balancing the needs of our stakeholders to create value over the long term. There are five key pillars to our business strategy underpinned by 10 strategic objectives.

High quality water Long term stability

We have a statutory duty to supply water meeting strict  We are a long term business. To be successful we must quality criteria in sufficient quantity to meet reasonable  maintain our performance over generations. This means demand. We manage water quality risks from catchment  not taking short cuts, making the appropriate long term to tap to ensure we meet or exceed quality requirements.  investment decisions and maintaining our assets to a We plan water resources in the short and long term to  high standard. We will achieve this through effective meet day to day demand and address the long term  financial management, strong corporate governance impact of population and climate change.  and by being efficient and adaptable.

High standard of service Community conscious

Our customers don t have a choice of water supplier  As the provider of the public water supply, Jersey Water is and place their trust in Jersey Water to act responsibly.  inextricably linked with the local community. Our actions We must meet or exceed our customers expectations  have an impact on the community and environment. We both in terms of the product we supply and the service  focus on ensuring that the lasting legacy of Jersey Water we provide, whilst ensuring that our charges are cost  on Island life is a positive one. To achieve this we play our reflective and fair. part in supporting community initiatives and looking after

the environment.

A great place to work

Jersey Water can only succeed as an organisation with high calibre, happy and engaged employees working in a safe workplace. By providing an environment where employees are supported to take on more responsibility, experience new challenges and fulfil their potential, we will build on our capability, resilience and performance.

Sufficient water  Charges that are fair, resources to  affordable and value

meet demand for money

Safe, high quality  High customer drinking water ATER satisfaction

LITYW

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Good governance  Safety and with a focus  K wellbeing

on long term  R come before

resilience and  O everything else stability W

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Efficient, financially  Engaged, secure and generates  US empowered and

a fair profit CONSCIO effective people

Environmentally  A positive impact on

responsible and  Island life and our local sustainable business community

Our business

Jersey Water is the sole supplier of treated mains water to the Island of Jersey. In 2017, we supplied 7.3 billion litres of mains water to approximately 40,000 homes and businesses across the Island. Our two water treatment works feed our 580km network of mains where we supply the population with an average of 20.7 million litres (Ml) of water per day.

Water resources

Jersey s water resources are nearly all derived from rainfall dependent surface waters. We capture and store raw (untreated) water in six storage reservoirs with a capacity

of 2,687 million litres (Ml), which is approximately 120 days of useable supply. We also capture raw water from stream catchment ponds and abstraction pumping stations across the Island. The nature of rainfall patterns in Jersey means that we generally rely on rainfall in the autumn and winter to replenish water resources and keep them topped up for as long as possible.

To help protect against prolonged water shortages,

the Company has a standby reverse osmosis (RO) desalination plant. The plant, which can now produce 10.8Ml/day - approximately half of daily demand - is operated when there is a risk that other water resources will be insufficient to meet demand.

Jersey Water s plan for meeting the Island s future demand for water is set out in its 25-year Water Resource Management Plan, last updated in 2010. The plan predicted that in 2035, if no action was taken, there would be a shortfall in water available for use amounting to approximately 6.5Ml/day

or 26% of the forecast daily demand. The Company has implemented a number of measures to address this shortfall, including the doubling in capacity of the desalination plant and the implementation of Island wide water metering. The Company has commissioned the preparation of a new water resources management plan. The first phase of the plan will be completed in 2018 and will measure the long term effects of changing weather patterns, population and demographics on the supply demand balance.

Water quality

The water we supply is consistently of a very high quality. Bacteriological quality is good and there is an ongoing high degree of compliance with other water quality parameters. This is achieved despite often challenging raw water quality that is susceptible to high concentrations of nitrates and pollution by pesticides at certain times of the year.

The Company s two water treatment works both use the same treatment processes to transform raw water into

potable water. Firstly, chemically assisted sedimentation and rapid gravity filtration removes the majority of organic matter; then a two-stage treatment process utilising Ultra Violet (UV) radiation and dosing with ammonia and chlorine disinfects the water. Additional processes are in place to control taste, odour and plumbosolvency.

The treated water supply is vulnerable to the effects of diffuse nitrate and pesticide pollution across the Island. Driven principally by agricultural activity, the levels of these agro-chemicals in water resources regularly exceed the regulatory limits for treated water. Jersey Water manages this risk through careful blending, dilution and treatment (where possible). However, on occasion, circumstances can be

such where minor, short-term exceedances in treated water are unavoidable. The Company has in place a dispensation from the States of Jersey for compliance with water quality parameters relating to oxadixyl and nitrates that expire in 2019 and 2021 respectively. The dispensations were not used during 2017 and the Company manages water quality in order to avoid the need for their use in all but exceptional circumstances. In addition, Jersey Water works closely with the Planning & Environment Department of the States of Jersey and the local farming community looking at ways in which raw water quality can be improved.

The Company s objective is to supply water that meets all regulatory parameters so that it is not reliant on any quality dispensations.

• Stream Abstraction Point Desalination Plant Raw Water Storage Tank
  • Raw Water Storage Reservoir Water Treatment Plant Ground Water Resource

Regulation

The supply of water in Jersey is mainly regulated through

the Water (Jersey) Law 1972 which sets out, amongst other things, acceptable charging practices, service standards

and the minimum water quality standards. In addition, the Company s activities are also regulated through mechanisms within the Reservoirs (Jersey) Law 1996, the Water Resources (Jersey) Law 2007 and the Water Pollution (Jersey) Law 2000.

Principal strategic risks and uncertainties

Jersey Water s operations are subject to a number of risks and uncertainties that could, either individually or in combination, impact on our operations, performance and future prospects. The risks and uncertainties described in the table below are those that we believe to be of strategic importance to the future of the organisation.

We identify and manage these and other risks through our risk management processes (which are described further on page 30). The risk management processes are designed to manage and mitigate risk (rather than to eliminate it).

Unknown risks and those that the Directors believe are less significant may also have a material impact on the operations and performance of the Company.

Financial results

Turnover

Jersey Water s turnover in 2017 increased by 1.5% to £15,960k (2016: £15,720k). Income from the sale of water was £15,171k compared to £14,945k in 2016.

Measured water income totalled £14,084k representing

93% of water revenue in 2017, compared to 90% in 2016 (£13,516k). With the Island-wide metering programme complete less than 200 accounts are billed on a rateable value basis. Unmeasured water income, principally those customers billed on an assessed volume basis now account for only £425k of water charges or 3% compared to £825k or 6% of water revenue in 2016. The overall increase in water revenue arose from a combination of 303 new connections

to the network (2016: 374) and the at-inflation tariff increase of 2% in April.

Turnover in relation to rechargeable works was £473k, an increase of 11% on the prior year of £428k. Rechargeable works relate mainly to the installation of new water mains and connections. Although there were a lower number of connections in the year the number of larger connections to the network increased.

Operating expenditure

Operating costs increased by 3.9% or £412k to £11,108k during 2017 (2016: £10,696k). These increases were lower than budgeted but in line with expectations given the increased emphasis on water quality initiatives, regulatory compliance and best practice across the business, with pensions, cyber security and cost inflation adding to the upward pressure on expenditure.

Operating profit

The Company generated an operating profit of £4,852k, which is a 3% decrease or £172k lower than 2016 (£5,024k). The reduction was due to the increased operating costs discussed above which were partially offset by increases in turnover.

Net interest expense

Net interest expense totalled £417k in 2017 which is a £112k increase on 2016 (2016: £305k). The increase is mainly attributable to a net interest expense on pension obligations of £72k compared to net interest income in the prior year

of £53k, the movement arising as a result of market driven changes.

Profit before taxation

Profit before taxation for the year was £4,107k, which is £149k or 4% lower than 2016, driven principally by the reduction in operating profit.

Income tax

Income tax for 2017 totals £811k in the income statement compared to £922k in the prior year. The decrease in tax charge is due to a combination of lower operating profits and higher capital expenditure deductible for tax purposes.

Returns to shareholders

Earnings per share for 2017 was £0.34 for each ordinary share compared to £0.35 in the prior year, a small reduction arising from the £38k decrease in profit for the year to £3,296k (2016: £3,334k). 76.44% of the ordinary share capital of the Company is owned by the States of Jersey (representing 83.33% of voting rights) with the remaining 23.56% held by around 158 private and institutional investors.

Transactions with the States of Jersey

The total cash paid to the States of Jersey by Jersey Water during the year, including dividends was £4,440k (2016: £4,131k)

2017 2016

£ 000 £ 000

Dividends  1,830 1,789 GST collected 614 530 Jersey income tax paid 769 648 Social security contributions 378 388 Rent and rates 212 213 ITIS 528 454 Water resource licence fee 109 109

_______ _______

_£_4_,_4_4_0_ _£_4__,1_3_1_

Equity dividends

The Directors are recommending a final dividend on the Ordinary and A Ordinary shares of 13.932 pence per share (2016: 13.559 pence). This brings the total paid and proposed dividend for 2017 to 20.854 pence per share, an increase of 2.5% on the previous year s dividend of 20.345 pence.

2017 2016 Dividends declared and paid £ 000 £ 000

Previous year - Final dividend  1,310 1,281 Current year - Interim dividend 668 655

_______ ______

_£_1_,_9_7_8_ £__1_,9_3_6_ Dividends proposed

_______ ______ Current year - Final dividend _£_1_,_3_4_6_ _£_1_,3_1_0_

Cash flow

There was a net cash inflow of £1,061k in the year compared to a prior year outflow of £860k.

The higher cash inflow is a result of an increase of £695k in cash from operating activities (2017: £7,072k, 2016: £6,377k) arising from higher turnover, timing in trade receivables and payables accounts, partially offset by higher tax payment

due on the prior year. Net cash used in investing activities decreased by £1,253k (2017: £3,308k, 2016: £4,561k) due

to reduction in capital expenditure following the desalination plant upgrade nearing completion and £39k increased inflow from the sale of fixed assets. Cash outflow from financing activities increased by £27k to £2,703k (2016: £2,676k) resulting from a combination of lower interest receivable and higher dividends paid.

Capital expenditure

In 2017 the total capital expenditure decreased by £1,314k on the prior year to £3,275k (2016: £4,589k). The completion of the construction phase on the desalination plant has

been the main contributor to this reduction with expenditure reducing from £1,959k to £862k. It is anticipated that

the project will be completed in 2018 once the plant has undergone and passed the contractual performance testing and certain matters are rectified by the contractor. Of the remaining £2,413k spent in 2017 our focus on reducing leakage has seen £1,524k being spent on mains renewals

and metering. Excluding expenditure on the desalination plant 78% of the capital expenditure in 2017 was spent on the replacement and upgrade of the Company s assets.

The graph below provides an analysis of the expenditure in 2017 by type.

Fixed assets

At 31 December 2017 the Company held assets with net book value of £76,439k (2016: £75,430k), and tangible assets make up 99% of the book value at £75,642k

(2016: £74,613k). The completion of the commissioning and takeover tests on the desalination plant resulted in a transfer of £6,693k from uncompleted works to property and completed works (95% of the total transfers in the year).

In 2016, the Company embarked on a replacement programme for certain water meter assets. This project is anticipated to be completed in April 2018. As a result the useful economic lives of water meters due for replacement were adjusted in accordance with the programme timeline. The increased depreciation charge for the year is £79k (2016: £263k).

Investment properties

At the year end, the Company undertook an internal valuation of its investment property which concluded the market value remained at £675k (2016: £675k).

Loans and borrowing

Loans and borrowing at 31 December 2017 remained unchanged at £20,282k (2016: £20,282k).

In order to hedge against interest rate exposure on £5,250k

of the borrowing due to mature in 2021, the Company holds an interest swap contract for the same nominal value and maturity. Under FRS 102 this derivative liability is stated at fair value at the reporting date on the statement of financial position at £270k (2016: £414k) with a gain in the fair value of £144k being recognised in other comprehensive income for the year (2016: £128k loss).

26% 24% Capital  

expenditure  

by type

23% 2%

9%

Mains & service renewals

Mains extensions &  distribution network

Metering

Operating infrastructure  

& equipment

Water quality Water resources

Desalination plant  upgrade

Defined benefit pension scheme

Under FRS 102 the Company s defined benefit plan net liability reduced by £2,706k during the year, reducing the net deficit to £236k from £2,942k in 2016. The reduction in the size of the deficit is mainly due to gains from investment performance of £1,829k and market driven changes in assumptions decreasing the value of future liabilities by £853k.

Deferred tax liability

The deferred tax liability increased in the year by £826k to £6,394k. The movement is a combination of an additional charge recognised in other comprehensive income of £627k arising from the reduction in value of the pension scheme deficit and a slight increase in the amount charged to the income statement arising from an increase in accelerated capital allowances during the year.

Over the past five years,

the Company has had considerable success in the reduction of leakage through a combination of the effects of metering, mains renewals, pressure reduction and active leakage detection.

Water quality

The quality of water supplied by the Company in 2017 was, once again, of a very high standard with an overall compliance rate of 99.98% with the water quality requirements of the Water (Jersey) Law 1972 (2016: 99.99%). There were no instances of pesticides or nitrates exceeding regulatory limits in the treated water during the year and the bacteriological compliance of water leaving the treatment works was 100% (2016: 100%).

During 2017, the Company carried out nearly 15,000 regulatory analyses of treated water. Of these, just three were outside their respective regulatory parameter but posed no threat to health. Full details are available in Jersey Water s 2017 Water Quality Report available from the Company s website.

Nitrate concentrations in raw water sources are mainly dependent on the volume and timing of the application of fertiliser during the potato growing season and of rainfall in the winter and summer months; factors over which we have no control. Jersey Water has a dispensation for nitrates under the Water (Jersey) Law 1972, which allows for a maximum concentration of 65mg/l and places additional restrictions on the number of samples exceeding the 50mg/l limit. The dispensation expires in December 2021.

During 2017, the maximum concentration of nitrates detected in treated water was 36.6mg/l; below the regulatory limit of 50mg/l and lower than the 2016 maximum of 40.7mg/l. This was the lowest level of nitrates recorded in treated water and the 4th consecutive year in which nitrate concentrations in treated water remained within regulatory limits. The reduction was certainly, in some part due to the much drier conditions during the growing season reducing run off and ground

water discharge. However, a further element will be due to the initiative by the Jersey Royal Potato Company to trial the use of GPS controlled tractors and in-furrow precision application of fertilisers to reduce the volumes of nitrates applied to the land. It is understood that in 2018, the Company will be using the technology on around 90% of its fields under cultivation, a significant step towards the reduction of fertiliser use in nitrate sensitive catchments. The impact of nitrate reduction measures on raw water quality and the ongoing need for dispensations for nitrates under the Water (Jersey) Law 1972 can only be assessed over an extended multi-year period, taking in many different weather types. Consistent, year on year reductions in nitrates in raw water sources will be needed before the project can be hailed a success.

In 2016, the Company identified the presence of oxadixyl, a pesticide last used in 2003, in raw water sources across the Island. Given the prevalence of oxadixyl in the Island s ground and surface water, the Company was granted a precautionary dispensation under the Water (Jersey) Law 1972, which increases the permitted regulatory limit for oxadixyl from 0.1ug/l to 0.3ug/l (one tenth of the health based limit) for a period of three years. The dispensation for oxadixyl has not been used to date. The Company continued to manage oxadixyl effectively through selection and blending of raw water and treatment.

In 2017, we undertook over 47,000 analyses, looking for over 90 different pesticides. Our testing identified 249 instances (of which 136 were for oxadixyl) where concentrations exceeded the limit for drinking water quality, this was down by 34%

on the previous year s total of 376. The improvement can

be attributed to two significant factors; low rainfall (the 2017 growing season was unusually dry) and the efforts made

by the farming community to manage water quality risks

by restricting the use of certain pesticides in Jersey Water s catchment areas. Subsequent to the year end, Jersey Water had to take both Handois Reservoir and Queen s Valley out of service (separately) due to pollution incidents involving the pesticides azoxystrobin and metribuzin respectively. These incidents demonstrate that there is still some way to go to protect the Island s water resources from pollution risk.

Jersey Water continues to work closely with

the farming community and the Environment Department as part of the Action for Cleaner Water Group

Jersey Water continues to work closely with the farming community and the Environment Department of the States of Jersey, as part of the Action for Cleaner Water Group. The pesticide and fertiliser management initiatives referred to above were implemented in 2017, the group agreed further measures to safeguard water catchment areas, including the refinement of risk gradings for catchments and implementing further voluntary controls over the use of pesticides in catchments for 2018.

In 2017, the Company supported the States of Jersey s Water Plan for Jersey as well as amendments to the Water Pollution (Jersey) Law 2005. It is hoped that the regulatory measures promised under the Water Plan can be implemented by the States of Jersey in order to support and keep up with the voluntary measures implemented by the farming sector.

In 2017, the Company commissioned the development of a live distribution network management system. The system will allow the distribution network to be monitored in real time to allow operatives to understand pressures, flows, the age

of water in the mains and numerous other parameters. The system will facilitate the modelling of effects of changes to the network on water quality, pressure and quality of service. The system will be developed in phases over the coming years to add functionality in stages.

During 2017, Jersey Water submitted a planning application to install a bypass on the western stream at Val de la Mare reservoir. The purpose of the bypass being to protect the

body of water within the reservoir from pesticide and fertiliser pollution from the stream. The planning process has been

the subject of consultation with numerous stakeholders

and is due to complete during 2018. Further water quality initiatives during 2017 included the installation of a Resmix, reservoir water mixer, to manage manganese and dissolved oxygen levels in Grands Vaux and the installation of individual filter turbidity meters at Augrs Water Treatment Works to better monitor filter performance and water quality.

Water resources

During 2017, Jersey Water supplied a total of 7,327Ml of water. This represents a reduction of 3.2% on the previous year (2016: 7,567Ml) but a 2.1% increase on the five year average of 7,174Ml. The lower volume supplied is principally attributed to the management of leakage (see Mains Network) coupled with the effects of a relatively wet summer, reducing demand.

Rainfall in 2017 totalled 1,027mm (2016: 986mm), an increase of 4.2% on the previous year and 2% on the

five year average. Rainfall patterns during the year were unusual in that the first quarter was dry with just over half of the rainfall of the previous year and around 75% of the average. This was then compensated for in the spring, late summer and autumn with some with higher than average (and prior year) rainfall.

Water in store began the year at 63% full, the lowest since 2001. Levels recovered until reservoirs reached full in early March. Thereafter, water resources maintained a similar pattern to the average, recovering in months of heavy rainfall but reducing through the year to a minimum of 70% full in November. Reservoirs were replenished during November and December and at the year end stood at capacity and well above the average of 89% for that time of year.

The operation of the desalination plant for commissioning and testing during the year produced 338Ml of desalinated water which was transferred to Val de la Mare Reservoir for onward use in treatment and supply. The plant, whose refurbishment and extension was started in October 2015, completed takeover tests in May 2017. Subsequent performance

trials (the final stage of the project) planned for September 2017, were deferred until 2018 pending the resolution by

the contractor of a number of matters outside the control of Jersey Water. The plant should offer an improvement in energy efficiency of 36% over the old plant and has a capacity of 10.8Ml/day (approximately 50% of daily demand).

At the end of 2017, Jersey Water commissioned the development of its second water resources management plan. The plan will seek to determine what measures will be necessary to ensure the Island will have sufficient water resources to meet demand in the future (looking 25 years ahead) taking account of the estimated effects of climate change and population in Jersey. The previous plan, completed in 2010, resulted in the roll out of Island wide metering for water customers and the extension of the desalination plant referred to above.

800

Demand

700

668 678 660

600 637

2017 600 610 607 600

584 571 575 500 536

2016

400

5 year average 300

200

100

569 546 596 599 640 645 709 717 674 650 628 594 0

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

Reservoir levels and rainfall

Monthly rainfall 2017 Monthly rainfall 2016

Water in store 5 year average Water in store 2016

Water in store 2017

250 100% 90%

200 207 80% 70%

150 155 161 60%

145

131 50% 100 105 112 106 40%

96

89

80 30% 68 70 64

50 64 55 62 58 20%

45

38 39

10% 23 22 21

0 0%

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

In 2017, the Company joined the Institute of Customer Service ( ICS )

and outperformed both the UK All-sector average and the Utilities sector in the UK

Customer Satisfaction Index.

Mains network

In 2017, the Company renewed 2.1km of water mains (2016: 2km) in line with our annual objective. The renewal of mains involves the replacement of old, end of life, unlined cast iron or galvanised iron pipework, and

related service connections where appropriate. Schemes completed during the year include the replacement of 835 metres of main along Rue de La Baie in St Brelade s bay (the original dating back to 1900) and the replacement

of 303 metres of pipe laid in 1903 feeding Seaton Place and the renewal of 138 metres of main feeding Old Road Gorey (originally laid in 1959). During 2018, the Company plans to renew 2km of mains including the replacement of the cast iron main feeding Stopford Road in St Helier.

During the year Jersey Water made 303 new connections to its mains network, down on the 374 installations in 2016.

Mains extensions in 2017 totalled 1.9km, including 0.25km funded by Jersey Water. During 2018, in addition to third party funded mains extensions, the Company plans to install 2.7km of new water mains bringing potable mains water to new areas of the Island.

In 2017, leakage levels fell by 14% to 3.05Ml/day (2016: 3.56Ml/day). The reduction is attributable to fewer burst mains in 2017 and the resolution of leakage occurring on certain types of meter installations reported in 2016. Over the past five years, the Company has had considerable success in the reduction of leakage through a combination of the effects of metering, mains renewals, pressure reduction and active leakage detection.

Customer service

In 2017, the Company joined the Institute of Customer Service ( ICS ) and commissioned its first ever customer satisfaction survey. The results of the survey are shown in the table below. Jersey Water outperformed both the UK All-sector average and the Utilities sector in the UK Customer Satisfaction Index in all three key metrics.

UK customer satisfaction index (UKCSI)

0 20 40 60 80 100 Jersey Water Business Benchmarking

Utilities UK all-sector average

Jersey Water Business Benchmarking survey data based on respondents from Jersey Water customer survey.

UKCSI July 2017 data sourced from nationwide ICS survey panel of 10,000 customers. The results are generated from a maximum of 400 customer respondents.[1]

Net promoter score

-10 -5 0 5 10 15 20 25 30 35 40 Jersey Water Business Benchmarking

Utilities UK all-sector average

Net Promoter Score ( NPS ) is based on likelihood to recommend scores. % of respondents scoring 9 or 10 (out of 10) on likelihood to recommend MINUS % of respondents scoring 0-6 on likelihood to recommend EQUALS NPS.1

Customer effort

0 1 2 3 4 5 Jersey Water Business Benchmarking

Utilities UK all-sector average

Jersey Water continues to offer free water

efficiency devices to all

domestic customers.

Our text based customer feedback tool confirmed the results of the UKCSI benchmarking. We scored an average of 94% slightly up on the previous year (2016: 93%).

At the end of 2017, approximately 94% (2016: 94%) of our customer base are charged for water on a metered basis with the majority of the balance being charged for water on an assessed volume basis. There remain less than 200 properties paying for water on a rateable value basis and these will be transferred to meter or assessed volume by the end of 2018.

Jersey Water has a policy of limiting price increases to at

or below inflation wherever possible. This policy has been successfully applied in 14 of the past 15 years. Adjusting

for the effects of inflation, the price of water has reduced, in real terms, by 8.2% over the past decade, made possible

by the Company focussing on cost efficiency and sharing the benefit of those efficiencies with customers and shareholders. As reported in the 2016 report and accounts, the Company applied a price increase of 2% on 1 April 2017, in line with the rate of inflation in September 2016 and representing an increase of just 2 pence per day for the average household. Following the year end, the Company announced its prices taking effect in April 2018 and incorporating a below inflation increase of 2.75%.

In partnership with the water efficiency experts, SaveWaterSaveMoney.co.uk, Jersey Water continues

to offer free water efficiency devices to all domestic customers. This is supported by a free online water savings calculator which provides water and energy savings tips tailored to each customer s specific circumstances and recommends water saving devices to help reduce water consumption in the home.

Customer Effort is based on the question: How much effort did you have to make to complete your transaction, enquiry or request on this occasion (1-10 scale). A lower score signifies less effort required on the part of the customer.1

Employees The second cohort of the Company s Talent Pipeline

Programme ( TPP ) completed the formal elements of Jersey Water had 83 employees as at 31 December  the course during 2017 and their action learning project in 2017 (2016: 81). Staff turnover remains low at 8.5%  January 2018. The TPP is a programme aimed at those (2016:8.7%) and our short-term sickness absence rate  employees who do not yet have managerial responsibility

in 2017 was 2% (2016: 2%). but aspire to progress. The TPP supports the development The Company undertakes an Employee Engagement  of their career aspirations with this structured experiential Survey every other year in order to measure progress  training programme.

in delivery of employee initiatives and identify areas for  All Water Treatment Works operators completed the Level improvement. In the 2017 survey, the Company scored  2 NVQ qualification in Potable Water Treatment Process

an overall engagement score of 89%, down slightly  Science and Operational Practices and a number of

from the 2015 score of 93% but still well ahead of the  individuals completed degrees and other qualifications benchmark score of 77%. Feedback from the survey  supported by the company. These included Andrew

is used to shape initiatives for  Rive (Project Engineer) who obtained the future. During 2017, the  a Bachelor of Science with Honours Company implemented a new from the Open University and Mark social media communication tool for all employees, Workplace  Jersey Water has  Bchoawrtdeerend( As stasteuts M waitnha tgheer C) whahrote orebdta ined

by Facebook. The mobile  a long serving and  Institution of Water and Environmental app allows all employees to contribute and share media with  loyal workforce,  Management.

colleagues and keep each other informed as to what is occurring  with an average  Jloeyrasle wy oWrkaftoerrc hea, ws  ia th l o an ng a s ve er rv aingge asen rdv  ice within the Company.  service of 15 years.  osef v1e5nyreeacrisp. ieDnutsrin ogf l2o0n1g7 s, ethrveircee w aewraer ds. One of Jersey Water s strategic  Paul Swann (Customer Services Team

objectives is to ensure that  Leader), Francis Touzel (Senior Network our employees are engaged, Technician) and Jose Alves (Gardening empowered and effective. Jersey  Labourer) all celebrated 10 years of Water is committed to the development of relevant skills  service, Matthew Green (Plant Operator) celebrated 20 years

and knowledge for its employees using a variety of  and James Fullerton (Assistant Network Manager), Martin Le formal and informal teaching methods. To that end the  Moignan (Leak Detection Team Leader) and Valerie Higgins Company has a number of initiatives underway. (Accounts Supervisor) all completed 30 years of service.

During 2017, Jersey Water launched its Leadership Development Programme ( LDP ). The LDP is accredited by the Institute of Leadership & Management and aims to enhance and develop

the leadership skills of all employees with managerial responsibility. The first participants are due to complete the course and an action learning project during the first half of 2018.

Providing a safe place for our staff and contractors to work is of the utmost importance. In 2017, there were three (2016: five) time lost accident (using the definition in Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995 (RIDDOR) - an accident that results in an injured person being absent from work or unable to do their normal work for more than seven days). We review the circumstances surrounding all accidents to determine whether changes in practices or procedures are required to help prevent their recurrence.

Environment & Community We also supplied numerous schools and organisations

with branded reusable water bottles, refill stations and Jersey Water s charity of choice for 2017 was Mind Jersey,  educational visits, including Mont a L Abbe School,

an independent local charity that provides support to  Jersey Old Motor Club, Beaulieu Convent School and the people living with mental illness and promotes good  Viva Italia Festival.

mental health for all. Jersey Water employees raised

Land owned by Jersey Water continues to be utilised

a total of £7,770 (2016: £5,000), through a series of

by local clubs as a venue for sporting events. In 2017, fundraising events, including abseiling down Val de

Jersey Water hosted events by Jersey Motor Cycle

la Mare dam, an open day for the public to see inside

and Light Car Club, Jersey Old Motor Club, Channel Queen s Valley dam and

Island Occupation Society, pump station and a very

Channel Island Mountain popular water bottle stand

Bike Association and the

aint StheepWteemebkeern. dTehreFfuenstdivsal  The Jersey Water Bursary  Jersey Fresh Water Angling

Association. The Company also raised are matched by  is now a well-established  maintains both Val de la Mare

Joef r£s1e5y, 5W4a0t ewra asnpdr ethsee ntotetadl to  and popular scheme  and Queen s Valley Reservoirs

open to the public for all to Mind Jersey in early 2018. providing funding and work  enjoy. In 2017 we continued

The Stroke Association has  to support the important work been selected by Jersey  experience opportunities  of the National Trust Jersey

Water employees as the  for local students by sponsoring, for the third Company s Charity for  consecutive year, their Discover 2018. The mission of the  Magazine.

Stroke Association is to

The Jersey Water Bursary is prevent strokes and achieve

now a well-established and

life after stroke through providing services, campaigning,

popular scheme providing funding and work experience education and research. A series of fundraising events

opportunities for local students embarking on a degree occurring throughout 2018 are being planned.

course in a subject related to the supply of water (e.g.

In 2017, we commissioned the Love Theatre Company  engineering, environmental sciences, chemistry). The

to write and produce a short play to educate school  scheme came full circle for the first recipient of the children about the water cycle and being water efficient.  bursary, Jordan Todd, who re-joined the Company in a The Every Last Drop production visited 14 Island  full time capacity in our laboratory.

schools and was seen by over 1,000 students.

The Strategic Review was approved by the board on 15 Our ongoing programme to support local schools and  March 2018 and signed on its behalf by

clubs continued to go from strength to strength. In 2017, we

supported the Jersey Sings concerts for the second year,

supplying water refill stations and over 1,400 reusable water  Helier Smith

bottles for the primary school children taking part.  Chief Executive

A total of £15,540 was presented to Mind Jersey,

Jersey Water s charity of choice for 2017.

Corporate Governance

Compliance with the UK  Corporate Governance Code

The Company has chosen to adopt the principles of good corporate governance and best practice set out in the UK Corporate Governance Code (the Code ) as updated in 2016. The Board is of the opinion that, throughout the year under review, the Company has been in compliance with the main principles of the Code.

Directors and the Board

The Board

The Board comprises of nine directors, two of whom

are Executive Directors and seven of whom are Non- Executive Directors. The Board has a schedule of regular meetings, normally between six and eight per year, with any additional meetings convened as and when required.

Neither Executive Director holds any non-executive directorship positions.

The Board is collectively responsible for the long-term success of the Company. This is achieved by setting

the overall operating strategy, approving detailed business plans and overseeing delivery of objectives by continually monitoring performance against those plans. The Board establishes the culture, standards and values of the Company. The Board oversees the management of risk, monitors financial performance and reporting and ensures that appropriate and effective succession planning and remuneration policies are in place. The Chairman is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role. The Non-Executive Directors constructively challenge and help develop proposals on strategy and bring strong, independent judgement, knowledge and experience

to the Board s deliberations. The Board has Audit, Nomination and Remuneration Committees in place; the terms of reference of the Committees are available on request from the Company Secretary.

Whilst maintaining oversight at regular meetings of the Board, the day to day operation of the Company has been delegated to the Executives. The Board is supplied with a sufficient level of regular, detailed and timely management information to allow it to discharge its functions effectively.

Meetings and Committee membership

During the year, the Board met nine times. Details of attendance at Board meetings are provided in the table below:-

Board meetings Number of meetings in 2017 9

Tony Cooke 9 Mary Curtis 9

Tim Herbert 9 Stephen Kay  9 Helier Smith 9 Heather MacCallum 9 Daragh McDermott 9 Natalie Passmore   5/6

(appointed 11 May 2017)

Peter Yates 8 Director independence

The Board considers all of the Non-Executive Directors

to be independent in character and judgement. In determining independence, the Board considers the specific circumstances of each director, inclusive of those directors who have served more than nine years on the Board.

The Board has concluded that Tony Cooke, Mary Curtis , Stephen Kay, Tim Herbert, Heather MacCallum and Daragh McDermott shall be deemed independent.

Peter Yates, as Chairman of the Company, was considered independent on appointment and, in accordance with the Code, is not subject to the independence test thereafter.

Performance evaluation

In order to ensure that the Board continues to operate effectively, each individual board member and its Committees are subject to annual performance evaluations. The process measures the performance of the Board and its Committees against a set of predefined targets. Individual directors are assessed 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 collectively (as appropriate) and, if necessary, appropriate action is taken.

Other significant commitments Controls adopted by the Board (or its Committees) to ensure The Board has a process in place for reviewing the other  the effectiveness of the systems of internal control include the significant commitments of Non-Executive Directors and  following:-

their impact on the ability of the Non-Executive Directors to  

discharge their duties to the Company. The review of the corporate and operational risk

and control registers maintained and updated Reappointment by the Company and of the status of any actions

arising from their regular review;

Except where a director is appointed to fill a casual vacancy,

all directors are appointed by the shareholders at the Annual  The receipt of confirmation from senior

General Meeting. One third of the directors, or where the  management of the proper operation of controls number of directors is not a multiple of three, the number  throughout the period of the review;

nearest to one third, retire by rotation (based upon length of

service) and, where eligible, seek re-election each year. No  The review and approval during the year of terms director may serve a term of longer than three years without  of reference of committees;

seeking re-election. The Company has adopted a policy of  

requiring non-executive directors who have served on the  The review and approval during the year of the

Board for nine years or more to retire from the Board and  schedule of matters specifically reserved for its seek re-election on an annual basis. Directors appointed to  attention; and

fill a casual vacancy must seek formal appointment by the  The review of reports received from the Audit shareholders at the next Annual General Meeting.  Committee concerning the findings of the external

auditors on the financial statements of the

Relations with shareholders Company and the systems of internal control.

The Company is in regular contact with its majority and controlling shareholder, the States of Jersey, with whom they meet not less than twice a year. Details of contact with and the views of the States of Jersey are shared with the Board as necessary. The Company uses events such as the Annual General Meeting to interact with and hear the views of all shareholders. Due notice of the Annual General Meeting stating the business of the meeting is circulated to all shareholders in advance of the meeting in accordance with Companies (Jersey) Law, 1991, as amended. The Company monitors and reviews votes received and considers the need to engage further with shareholders in the event of significant opposing votes.

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 and mitigate (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 corporate and operational risk registers detailing and 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 are 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 in accordance with FRC s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting , and has been in place for the whole of the year, up to and including the date on which the financial statements are approved.

Audit Committee

The Audit Committee comprises of Heather MacCallum (Chair), Tony Cooke, Stephen Kay and Daragh McDermott.

The composition of the Committee ensures that as a whole there are sufficient skills, experience, knowledge, professional qualifications, utility and water industry expertise to discharge its responsibilities effectively. Biographical information and qualifications of each of the Audit Committee can be found on page 03.

The external auditors, the Executive Directors, and Financial Controller also attend the meetings by invitation. Details of meetings and attendance in 2017 are provided below:-

Audit Committee Number of meetings in 2017 3

Tony Cooke 2 Stephen Kay  3

Heather MacCallum 3 Daragh McDermott 3

Natalie Passmore* 3 (appointed 11 May 2017)

Helier Smith* 3

*by invitation

The terms of reference of the Audit Committee require it to  Review of financial statements

meet at least twice per annum. Additional meetings may be  To enable the Committee to discharge its responsibilities called where deemed necessary. The Committee is charged  effectively in respect of the financial statements, a number of by the Board with the following main responsibilities:- processes are in place.

To monitor the integrity of the financial statements of the Company and any formal announcements relating to the Company s financial performance;

To provide advice, when requested by the Board, on whether the annual report taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess performance, the business model and strategy;

To ensure that arrangements are in place for the proportionate and independent investigation of concerns raised confidentially by whistle-blowers about possible improprieties in matters of financial reporting or any other matters;

To review and monitor the adequacy, operation and effectiveness of the Company s risk management and internal control systems, including internal financial controls and make recommendations for improvement where necessary;

To review and approve the statements to be included in the annual report concerning internal control, risk management and the viability statement;

To oversee the external audit process and manage the relationship with the external auditors;

To compile a report on its activities to be included in the Company s annual report;

To report to the Board on how it has discharged its responsibilities;

To exercise judgement in deciding which of the issues it considers in relation to the financial statements to be significant; and

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 is briefed by the Finance Director in advance of the year end on the significant issues pertaining to the financial statements and how they will be dealt with. These issues are generally focused on the areas of subjectivity in the financial statements. In 2017, these included income recognition, impairment of fixed assets, pension scheme valuation assumptions, deferred tax, interest rate swap, recognition of third party funded mains and property valuations. Further details can be found in notes 3 and

4 of the financial statements. Changes in accounting or disclosure requirements and the accounting or disclosure implications of one-off events occurring in the year were also considered by the Committee. Where necessary, the Committee considers evidence and independent third party advice on the key matters for consideration.

At the year end, the Committee reviews the annual report, related announcements, going concern assumption and long-term viability statement and considers them in the context of the significant issues identified, the suitability of any key assumptions and the extent that they have been disclosed. The whole process is completed in consultation with the auditors whose view is sought by the Committee. The Committee also considers, based on their knowledge of the business and issues arising, whether they can advise the Board that the annual report as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company s position and performance, the business model and strategy.

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, given the size and complexity of the Company, not cost effective. This function is considered by the Committee on an annual basis.

Performance evaluation of the Audit Committee is described on page 29.

External Auditors The terms of reference of the Remuneration Committee allow Each year the Committee considers the external auditors  it to meet as and when necessary to:-

proposed approach and approves fees for the year-end  

statutory audit. The performance and effectiveness of the  Determine the policy on executive director and external auditors is monitored continually and formally  senior management remuneration and consider considered by the Audit Committee before a recommendation  specific remuneration packages for individual

is made to the Board regarding their reappointment. Length of  executive directors and senior management, having service of the incumbent audit firm, effectiveness of the audit  regard to the risk appetite of the Company and process, the independence and objectivity of the team, the  alignment to the Company s long term strategic depth and breadth of the audit approach, the level of fees and  goals so that rewards are linked to corporate and the quality of the service provided are all taken into account.  individual performance and designed to promote Fees paid to the auditor for the statutory audit of the Company  the long-term success of the Company;

are detailed in note 17 of the financial statements. Review and approve not less than once a year specific In line with best practice, and on rotation of audit firm, a  remuneration packages for all members of the Senior

competitive tender for audit services for the year end 31  Leadership Team and the Executive Directors;

December 2017 was initiated by the Audit Committee in  

December 2016. The Committee concluded the process in  Review the terms of executive director and senior February 2017 where it made the recommendation to the  management service agreements from time to time;

Board to appoint Deloitte LLP with Andy Isham as Lead Audit  

Partner. This recommendation was approved by the Board  Mshaainretahionl dceorn rteagcta ardsi nregq rueimreudn weritaht i iotsn pthrirnocuipg ah l  the and accepted by the Company s shareholders at the 2017  Chairman of the Board; and

Annual General Meeting.

The Audit Committee considers the impact of the provision of  At least once per year, or as required by

any non-audit services by the external auditor on the objectivity  the Board, the Committee will review its

own performance, constitution and terms of

aton tdh eindnaetpueren doef nthcee noof nth-aeu aduitd wit. o Trkh ,e s cizoen os fid the era ft eioen r  eh laas ti  vr ee g toa rd  reference to ensure it is operating at maximum

any audit, any potential involvement of the audit team in the  effectiveness and recommend any changes it work and the longer term effect of the non-audit services on  considers necessary to the Board for approval.

the relationship with the audit firm, including an assessment of

their continuing objectivity and independence. The fees paid to  Nomination Committee

the auditors for non-audit services are detailed in note 17 of the  The Nomination Committee currently comprises of Peter financial statements. Yates (Chair), Tony Cooke, Mary Curtis , Stephen Kay, Tim

Herbert, Heather MacCallum and Daragh McDermott. The Remuneration Committee Executive Directors, Natalie Passmore and Helier Smith may The Remuneration Committee currently comprises of Mary  also attend the whole or parts of meeting by invitation.

Curtis (Chair), Tim Herbert and Peter Yates. The Executive  Details of meetings held and attendance in 2017 are included Directors, Natalie Passmore and Helier Smith, may also  in the following table:-

attend the meeting by invitation.

No Director is allowed to be party to discussions regarding, or  Nomination play any role in, the determination of their own remuneration. committee

Details of meetings and attendance in 2017 are  Number of meetings in 2017 1 provided below:-

Tony Cooke 1 Remuneration   Mary Curtis 1

committee Tim Herbert 1 Number of meetings in 2017 3 Stephen Kay 1 Heather MacCallum 1

Mary Curtis 3

Daragh McDermott 1 Tim Herbert 3

Peter Yates 1 Peter Yates 3 Natalie Passmore* 1

Natalie Passmore* 1/1 (appointed 11 May 2017)

(appointed 11 May 2017) Helier Smith* 1 Helier Smith* 3 *by invitation

*by invitation

In 2017, we supplied 7.3 billion litres of mains water to approximately 40,000 homes and businesses.

The Committee is primarily responsible for the selection  The Nomination Committee makes recommendations

and appointment of the Company s Executives and Non- to the Board taking into account the performance of the Executive Directors as and when required. candidates at interview, their skills and experience and

their ability to meet the specific needs of the Company.

The other duties of the Committee include:-

Consideration is given to the use of external recruitment Making recommendations to the Board as to the  consultants and open advertising in the recruitment re-election of directors under the retirement by  process. Terms and conditions of appointment of non- rotation provisions in the Company s Articles  executive directors are available for inspection at the

of Association whilst giving due regard to their  Company s registered address during normal business performance and ability to continue to contribute  hours and at the AGM.

to the Board in light of the knowledge, skills and  It is the policy of the Board to populate itself with directors experience required; who have a diverse range of skills, attributes and

backgrounds so that collectively, the Board is appropriately Make recommendations to the Board for the re- resourced to discharge its duties effectively and meet the

appointment of any non-executive director at the  changing needs of the business. A wide range of factors conclusion of their specified term of office having  are considered in determining the appropriate composition due regard to their performance and ability to  of the Board including but not limited to technical expertise, continue to contribute to the Board in the light of  local market knowledge and experience, independence,

the knowledge, skills and experience required; length of service on the Board and diversity, including Regularly reviewing the structure, size and  gender balance.

composition including the balance of skills and  A rigorous recruitment process is in place for the

attributes required of the Board compared to its  appointment of non-executive directors to ensure that the current position and making recommendations to  policy of the Board to populate itself with directors who

the Board with regard to any changes; and have a diverse range of skills and attributes is met.

Keeping under review the leadership needs of  

the organisation, both executive, non-executive  Tenure

and other senior executives, including succession  Gender (Years) Age Sector

plans, with a view to ensuring the continued ability  Male 6 < 1 1 41 50 3 Utilities 5 of the organisation to operate effectively and

making recommendations to the Board. Female 3 1 3 3 51 60 3 Financial  2 Services

When selecting candidates for potential appointment as

a non-executive director, the Committee evaluates the  4 8 1 61 70 2 Legal  1 needs of the Company and identifies the necessary skills  Services

and experience required by candidates for consideration.  Human

9+ 4 70+ 1 1

Resources

Directors Report

Directors  Report

Activities of the Company Directors

The Company, which was incorporated in 1882, has adopted  Changes in Directors

 Jersey Water as its trading name. Jersey Water is the sole

The Directors of the Company on the date the financial supplier of treated water to the Island of Jersey.

statements were approved are detailed on page 02. With the Dividends  exception of Natalie Passmore, all Directors were Directors

of the Company throughout the year ended 31 December Ordinary and A ordinary shares 2017. Natalie Passmore was appointed to the Board on 11

May 2017 as an additional Executive Director.

The Company paid an interim dividend of 6.922 pence per

share on 22 September 2017 (2016: 6.786p). The Directors are  In accordance with the provisions of Article 49 of the proposing a final dividend on ordinary and A ordinary shares  Company s Articles of Association, Tim Herbert will retire for 2017 of 13.932 pence (2016: 13.559p), bringing the total  by rotation at the forthcoming Annual General Meeting dividend for 2017 to 20.854 pence per share (2016: 20.345p).  ( AGM ) and offer himself for re-election. Both Mary Curtis

and Peter Yates have completed more than 9 years service on the Board and are due to resign and seek reappointment

2017 2016 (thereafter on an annual basis) at the forthcoming AGM.

£ 000 £ 000 Tony Cooke has also completed more than 9 years service on the Board and will be resigning at the forthcoming AGM

Interim dividend paid 668 655 and will not be seeking reappointment.

Final dividend proposed 1,346 1,310

_______ ______ Following a recruitment campaign for Tony s replacement the £2,014 £1,965 Directors recommend the election of Mike Pocock as Non-

Executive Director.

Mike Pocock is Director of Asset Strategy of Affinity Water. He Preference shares

is a chartered civil engineer with over forty years experience

In 2017, the Company paid dividends on preference shares  in the water industry with Affinity Water and predecessor totalling £381k (2016: £381k). companies, Veolia and Three Valleys Water.

His range of design, construction, operational and business planning roles have spanned all aspects of water engineering and management. Mike was a long term member of the CIWEM Water Resources Panel and has contributed extensively to industry technical groups and research through Water UK and UKWIR. He is also a member appointed Director of the Affinity Water Pension Fund

As described on page 29, the Board has undertaken an annual formal assessment of its performance and that

of the individual Directors, including structured meetings between the Directors being assessed and the Chairman. Following this review, the Chairman 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.

Directors interests

Particulars of the holdings of the Directors, including family and beneficial interests, in the share capital of the Company as at 31 December 2017 are:

Ordinary  Preference

shares shares

Mary Curtis 5,838 - Tony Cooke 4,080 - Tim Herbert 1,500 - Stephen Kay 500 - Heather MacCallum 1,100 - Natalie Passmore 800 - Helier Smith 550 389 Peter Yates 3,938 -

JT Group Limited is wholly owned by the States of Jersey, Daragh McDermott is the Corporate Affairs Director of JT Group Limited.

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

The States of Jersey is the Company s majority and controlling shareholder.

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 and Officers of the Company.

Significant shareholdings

Set out below are details of the significant voting rights

(3% or more) in shares of the Company as at 15 March 2018.

% of total voting  

Shareholder

rights held The States of Jersey 83.33%

The States of Jersey owns 4,620,000 (100%) A Ordinary shares, 2,520,000 (50%) Ordinary shares and 900,000 (100%) 10% cumulative fifth preference shares. The A Ordinary shares, whilst in their ownership, have voting rights that confer twice the number of votes than those cast in respect of all other shares.

Independent Auditors

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

For and on behalf of the Board Louisa McInnes

Company Secretary

15 March 2018

Directors Statement

Directors Statement

Statement of 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 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;

Notify its Shareholders of the use of disclosure exemptions, if any, used in the preparation of the financial statements; and

Prepare the financial statements on the going concern basis of accounting 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.

Responsibility statement of the directors in respect of the annual financial report

We confirm that, having taken into account all of the matters considered by the Board brought to its attention during

the year and to the best of our knowledge, the financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary

for shareholders to assess the Company s position and performance, business model and strategy.

Review of risk management and internal control systems

We confirm that we have carried out a review of the Company s risk management and internal control systems. We are satisfied that the systems are aligned with our strategic objectives and these systems are being developed, applied and maintained appropriately. We are satisfied that the Company has effective processes in place to monitor and review material financial, operational and compliance controls.

Statement of viability

The Directors are responsible for assessing and expressing their view on the longer term viability of the Company taking into account the Company s current position and principal risks. The Code requires that Directors should explain this process and outcome in the annual report.

In accordance with the Code, the Directors have assessed the prospect for the Company over a longer period than the 12 months required by the Going Concern provision. The Board conducted this review for a period of five years in line with the Company s five year strategic business plan, for which the Company has sufficiently robust financial forecasts. Within the five year plan there are sufficiently robust financial forecasts; these are made up of detailed plans for the years one and

two with indicative forecasts for years three to five. Capital investment plans are detailed for the full five years.

The Board have considered the impact that the principal risks or combination of risks may have on the business including those that would threaten its business model, future performance, solvency or liquidity. A summary of the principal risks are summarised on page 14. Where relevant, the financial forecasts were subject to sensitivity analysis

to illustrate the potential effects of significant risks and identify whether any could represent serious threats to the Company s liquidity or operation.

The following sensitivities were used in stress testing the forecasts:

Variations in turnover due to the need to restrict water use (e.g. severe drought);

Increased expenditure from the operation of the desalination plant for a significant period of time;

Increased operating and financing costs as a result of increasing inflation and higher interest rates; and

Substantial increases in reactive capital expenditure and resource requirements following the failure of a critical asset or business system.

These were considered along with the Company s financial resources, the Water Resource Management Plan, its

wide and varied customer base within Jersey, the steady demand for its products and services and its stable and well established treatment and distribution network.

Based on the assessment of prospects and viability described, we confirm that we have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five year period ending 31 December 2022.

Going Concern

We also consider it appropriate to prepare the financial statements on the going concern basis, as explained in note 3 of the financial statements Basis of preparation .

Approved by the Board on 15 March 2018 and signed on its behalf by:

Peter Yates Chairman

Independent Auditor s Report to the Members of The Jersey New Waterworks Company Limited

Independent Auditor s Report to the Members of The Jersey New Waterworks Company Limited

Report on the audit of the financial statements

Opinion

In our opinion the financial statements present fairly, in all material respects, the financial position of The Jersey New Waterworks Company Limited ( the company ) as at 31 December 2017 and its financial performance and its cash flows for the year then ended in accordance with United Kingdom Generally Accepted Accounting Practice including Financial Reporting Standard 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland .

We have audited the financial statements of the company which comprise:

the statement of financial position;

the income statement;

the statement of comprehensive income; the statement of changes in equity;

the cash flow statement; and

the related notes 1 to 28.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs) and applicable law. Our responsibilities under those standards are further described in the auditor s responsibilities for the audit of the financial statements section of our report.

We are independent of the company in accordance with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit

of the financial statements in the UK and we have fulfilled

our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies

or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in respect of these matters. Responsibilities of directors

As explained more fully in the statement of directors responsibilities, the directors are responsible for the preparation and fair presentation of the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and

to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance

with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to

those risks, and obtain audit evidence that is sufficient

and appropriate to provide a basis for our opinion. The

risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Use of our report

This report is made solely to the company s members, as

a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed.

Report on other legal and regulatory requirements Matters on which we are required to report by exception

Under the Companies (Jersey) Law 1991 we are required to report in respect of the following matters if, in our opinion:

proper accounting records have not been kept, or proper returns adequate for our audit have not been received from branches not visited by us; or

the financial statements are not in agreement with the accounting records and returns; or

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

We have nothing to report in respect of these matters.

Andrew Isham

For and on behalf of Deloitte LLP St Helier, Jersey

15 March 2018

Financial Statements

Statement of financial position 31 December 2017

Note 2017 2016

£ 000 £ 000 £ 000 £ 000

Fixed assets

Intangible assets 5 102 142 Tangible assets 6 75,662  74,613 Freehold investment property 7 675 675

________ ________

76,439 75,430

Current assets

Inventories 8 616 640 Trade receivables 9 3,110 3,423 Cash 3,652 2,591

________ ________

7,378 6,654 Creditors - Amounts falling due within one year

Creditors and accruals 10 (2,210) (2,123) Income tax (620) (777)

_______ ________

 (2,830) (2,900)

Net current assets 4,548 3,754 ________ _______

Total assets less current liabilities 80,987 79,184

Creditors - Amounts falling due after more than one year

Bank loans 11 (14,900) (14,900) Derivative financial liability 12 (270) (414) Non-equity preference shares 13b (5,382) (5,382)

_______ ________

(20,552) (20,696)

Provisions for liabilities and charges

Deferred taxation 14 (6,394) (5,568)

________ ________ Net assets excluding pension liability 54,041 52,920

Pension (liability) 15 (236) (2,942)

________ ________

Net assets £__5_3_,_8_0_5_ _£_4__9_,9_7_8_

Capital and reserves

Called up equity share capital 13a 4,830 4,830 Reserves 48,975 45,148

________ ________

Total equity £__5_3_,_8_0_5_ _£_4__9_,9_7_8_

The financial statements on pages 40 to 59 were approved by the Board of Directors on 15 March 2018 and were signed on its behalf by:

Peter Yates, Chairman

Income statement

For the year ended 31 December 2017

Note 2017 2016

£ 000 £ 000 £ 000 £ 000

Turnover 16 15,960 15,720 Operating expenditure 17 (11,108) (10,696)

________ _______ Operating profit 4,852 5,024

Revaluation of investment property - (45) Profit/(loss) on disposal of fixed assets 53 (37)

Interest

- receivable and similar income 19a 5 58

- payable and similar charges 19b (422) (363) _______ _______

Net interest expense (417) (305)

Non-equity dividends 20 (381) (381)

(798) (686) ________ _______

Profit before taxation 4,107 4,256 Jersey income tax 21a (811) (922)

________ _______

Profit for the reporting period __£_3_,_2_9_6_ __£_3_,3__3_4_ Basic and diluted earnings per ordinary share of £0.50 22 ___£_0_._3_4_ ___£_0_._3_5_ The results for the current and prior year all relate to continuing operations.

Statement of comprehensive income For the year ended 31 December 2017

Note 2017 2016

£ 000 £ 000

Profit for the reporting period 3,296 3,334 _______ _______

Fair value movement on swap 12 144 (128) Annual re-measurements of net defined benefit liability 15 2,992 (4,202) Total income tax on components of   21b (627) 867

other comprehensive income _______ _______

Other comprehensive income/(loss) for the year net of tax  £2,509 £(3,463)

_______ _______ Total comprehensive income/(loss) for the year £5,805 £(129)

_______ ________

Statement of changes in equity

For the year ended 31 December 2017

Note Called-up  Revaluation  Cash flow  Retained  Total

equity share  reserve hedge  earnings

capital  reserve

£ 000 £ 000 £ 000 £ 000 £ 000

Balance as at 1 January 2016

Profit for the reporting period

Other comprehensive loss for the year Total comprehensive loss for the year Equity dividends

Transfer between reserves

Balance as at 31 December 2016

__4,830_____ __1,049_____ ___(229)____ __46,393______ __52,043______

- - - 3,334 3,334

______ -_ ______ -_ ___ (102)____ ___(3,361)_____ __ (3,463)______

______ -_ ______ -_ ___ (102)____ _____ (27)___ ____ (129)____

23 - - - (1,936) (1,936) 7 ______ - _ ___ (374)____ ______ -_ ____ 374____ _______ -_

£4,830 £675 £(331) £44,804 £49,978 _______ _______ _______ ________ ________

Balance as at 1 January 2017

Profit for the reporting period

Other comprehensive income for the year Total comprehensive income for the year Equity dividends

Transfer between reserves

Balance as at 31 December 2017

__4,830_____ ____675___ ___(331)____ __44,804______ __49,978______

- - - 3,296 3,296

______ -_ ______ -_ ___ 116____ ___2,393_____ ___2,509_____

______ -_ ______ -_ ____116___ ___5,689_____ ___5,805_____

23 - - - (1,978) (1,978) 7 ______ -_ ______ -_ ______ - _ _______ -_ _______ -_

£4,830 £675 £(215) £48,515 £53,805 _______ _______ _______ ________ ________

Cash flow statement

For the year ended 31 December 2017

Note 2017 2016

£ 000 £ 000

Net cash inflow from operating activities 24 __7_,_8_4_1_ ___7_,0_2_5_ Jersey income tax paid ___(_7_6_9_) ____(6_4__8) Net cash generated from operating activities __7_,_0_7_2_ __6__,3_7_7_

Cash flow from investing activities

Purchase of fixed assets (3,381) (4,595)

_______ _______

Disposal of fixed assets _____7_3_ _____3_4_ Net cash used in investing activities (3,308) (4,561)

_______ _______

Cash flow from financing activities

Interest paid (349) (364) Interest received 5 5 Non-equity dividends paid (381) (381) Equity dividends paid __(1_,_9_7_8_) __(_1_,9_3_6_)

Net cash used in financing activities (2,703) (2,676)

_______ _______

Increase/(decrease) in cash and cash equivalents 1,061 (860) Cash and cash equivalents at the beginning of the year __2_,_5_9_1_ ___3_,4_5_1_

Cash and cash equivalents at the end of the year _£_3_,_6_5_2_ _£__2_,5_9_1_

Notes to the Financial Statements

1 General information

The Jersey New Waterworks Company Limited supplies potable mains water to the Island of Jersey.

The Company is a public company limited by shares and is incorporated and domiciled in Jersey. The address of its registered office is Mulcaster House, Westmount Road, St Helier, JE1 1DG.

2 Statement of compliance

The financial statements of the Company have been prepared in compliance with United Kingdom Accounting Standards, including Financial Reporting Standard 102,

 The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland ( FRS 102 ) and Jersey Companies Law 1991.

3 Summary of significant accounting policies

The principle accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

Basis of preparation

The financial statements are prepared on a going concern basis, under the historical cost convention, as modified for the revaluation of investment properties and non-basic financial instruments measured at fair value through profit or loss.

The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates.

It also requires management to exercise its judgement in the process of applying the Company s accounting policies. The areas and estimates involving a higher degree of judgement

or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

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 Strategic Review on pages 08 to 27 and in notes 11 and 12. The Company has 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 of accounting in preparing the financial statements.

Turnover

Revenue is measured at the fair value of the consideration received or receivable when services are delivered. Turnover represents the total value of water charges net of goods and services tax (GST), together with minor

contracts and rental income.

Income from minor contracts (rechargeable works income) 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.

1. Water charges

Water charges are 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 2017.

2. Third party funded works

Rechargeable works income relates to charges applied to offset costs of installing new service mains and services to properties across the Island.

Stocks of water

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

Inventory

Inventory is valued at the lower of cost and estimated selling price less costs to complete and sell which is the equivalent to the net realisable value. Inventory is recognised as an expense in the period in which the related revenue is recognised or allocated to capital projects undertaken in the year.

Cost is determined on a weighted average cost basis, which includes the purchase price, including taxes and duties and transport and handling directly attributable to bringing the inventory to its present location and condition.

At the end of each reporting period inventory is assessed for impairment. If an item of inventory is impaired, the identified inventory is reduced to its selling price less costs to sell and an impairment charge is recognised in the income statement. Where a reversal of the impairment is recognised the impairment charge is reversed, up to the original impairment loss, and is recognised as a credit in the income statement.

Intangible assets

Computer software is stated at cost less accumulated depreciation and accumulated impairment losses. Software is amortised over its estimated useful economic life of between three to five years on a straight line basis.

The assets are reviewed for impairment if factors such as technological advancement or changes in market price, indicate that residual value or useful life have changed. If there is impairment the residual value, useful economic life or amortisation rate are amended prospectively to reflect the new circumstances.

Intangible fixed assets under construction or development are recognised as Intangible Uncompleted Works until such time as they are ready for use. At this point the asset is transferred to Software and amortisation commences. Subsequent qualifying expenditure is transferred directly to Software .

Tangible assets

Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes the original purchase price, costs directly attributable to bring the asset to its working condition for its intended use, dismantling and restoration costs.

Tangible fixed assets under construction are recognised within Tangible Uncompleted Works until such time as they are ready for use. At this point the asset is transferred to Property and Completed Works and depreciation commences. If

the major components of a tangible asset have significantly different patterns of consumption of economic benefits the Company will recognise those components as separately identifiable assets. Subsequent qualifying expenditure is transferred directly to Property and Completed Works .

Expenditure incurred on a tangible fixed asset after the asset has been transferred to Property and Completed Works will be recognised as part of the carrying amount of the asset

if it is specifically related to a major inspection, overhaul or contractual performance test provided it has met the asset recognition criteria within FRS 102.

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

Following an increase in leaks on certain types of water meter installations, in 2015 the Company reviewed the useful economic lives of certain assets within Property and Completed Works . The useful economic life of certain water meters was decreased in line with expected usage and this revision was accounted for prospectively from October 2015.

In 2016 the Board undertook to replace the water meter installations that were susceptible to increased leakage. As a result the remaining useful economic lives of these assets was reduced in line with the replacement programme schedule. These changes resulted in an increase to the depreciation charge of £243k in 2016.  

Since the initial assessment in 2016, the replacement rate

of the estimated 17,000 affected meters has reduced to 59.0% whilst the anticipated completion date has been extended until April 2018. This change resulted in an additional accelerated depreciation charge of £79k in 2017 and an anticipated increase of £52k in 2018 to bring the assets to a nil net book value. This revision was accounted for prospectively with effect from 1 October 2016. During the year ended 31 December 2017 the Company disposed of £504k of these fully depreciated meters.

Freehold 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 (to earn rental income and or capital appreciation). These properties are classified as investment properties and are accounted for at fair value at the reporting date with changes in fair value recognised in the income statement. The Company engages an independent qualified valuer to provide a full valuation of investment properties at least once every three

to five years, and these valuations are reviewed annually by management for appropriateness in light of market movements. The last independent valuation was undertaken by Buckley and Co Limited and provided a market valuation as at 31 December 2016, the next valuation will not be due until 2019. For the year ended 31 December 2017 management reviewed the valuation and assessed that there has been no movement in the fair

value of each property at the reporting date. No depreciation is provided in respect of freehold investment property.

Cash and cash equivalents

Cash and cash equivalents, includes cash in hand, at bank and held on deposit for fixed terms of up to 3 months. These items are included within Cash in the statement of financial position.

Financial instruments

The Company has chosen to adopt sections 11 and 12 of FRS 102 in respect of financial instruments.

1. Financial assets

Basic financial assets, including trade and other receivables, cash and bank balances and investments

are initially recorded at transaction price, unless the arrangement constitutes a financing transaction where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Such assets are subsequently carried at amortised cost using the effective interest method.

At the end of each reporting period financial assets measured at amortised cost are assessed for objective evidence of impairment. If an asset is impaired the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the assets original effective interest rate. The impairment loss is recognised in the income statement or statement of comprehensive income.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised the impairment is reversed. The impairment reversal is recognised in the income statement.

2. Financial liabilities

Basic financial liabilities, including trade and other payables, bank loans and preference shares that are classified as

debt, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Preference shares, which result in fixed returns to the holder are classified as liabilities. The dividends on these preference shares are recognised in the income statement as non-equity dividends.

Derivatives such as interest rate swaps are not basic financial instruments.

3. Derivatives

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The fair value assumes that the amount that would be paid to the counterparty to settle the liability would not incorporate changes in the Company s credit risk since the inception of the contract. Changes in

the fair value of derivatives are recognised in the income statement as finance costs or finance income as appropriate, unless they are included in a hedging arrangement.

The Company applies hedge accounting for transactions entered into to manage the cash flow exposures of borrowings. Interest rate swaps are held to manage the interest rate exposures and are designated as cash flow hedges of variable rate borrowings.

Changes in the fair values of derivatives designated as cash flow hedges, and which are effective, are recognised in other comprehensive income. Any ineffectiveness in the hedging relationship (being the excess of the cumulative change in fair value of the hedged item since inception of the hedge) is recognised in the income statement.

The gain or loss recognised in other comprehensive income is reclassified to the income statement when interest is incurred and when the hedge relationship ends. Hedge accounting is discontinued when the hedging instrument expires, no longer meets the hedging criteria, the forecast transaction is no longer highly probable, the hedge instrument is derecognised or the hedging instrument is terminated.

4. Offsetting

Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is an enforceable right to set off the recognised amount and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Taxation

Taxation expense for the period comprises current and deferred tax recognised in the reporting period. Tax is recognised in the income statement, except to the extent that

it relates to items recognised in other comprehensive income or directly in equity. In this case tax is also recognised in other comprehensive income or directly in equity respectively. Tax is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the period end.

Current or deferred taxation assets and liabilities are not discounted.

1. Current tax

Current tax is the amount of income tax payable in respect of the taxable profit for the year or prior years.

2. Deferred tax

Deferred tax arises from timing differences that are the difference between taxable profits and total comprehensive income as stated in the financial statements. These timing differences arise from the inclusion of income and expenses in tax assessments in periods different from those in which they are recognised in the financial statements.

Deferred tax is recognised on all timing differences at the reporting date. Unrelieved tax losses and other deferred tax assets are only recognised when it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits.

Employee Benefits

The Company provides a range of benefits to employees, including paid holiday arrangements and defined benefit and defined contribution pension plans.

1. Short term benefits

Short term benefits, including holiday pay and other similar non-monetary benefits are recognised as an expense in the period in which the service is received.

2. Defined contribution pension scheme

The Company operates a defined contribution scheme for its employees. A defined contribution scheme is a pension plan under which the Company pays contributions into a separate entity. The contributions are recognised as an expense in the period they are due. Amounts not paid are shown in accruals in the statement of financial position. The assets of the plan are held separately from the Company in independently administered funds.

3. Defined benefit pension scheme

The Company operates a defined benefit scheme for certain employees. A defined benefit scheme defines the pension benefit that the employee will receive on retirement, usually depending upon several factors including age, length of service and remuneration. A defined benefit scheme is a pension plan that is not a defined contribution scheme.

The asset or liability recognised in the statement of financial position in respect of the defined benefit scheme is the present value of the defined benefit obligation at the end of the reporting date less the fair value of the scheme assets at the reporting date.

The defined benefit obligation is calculated using the projected unit credit method. The Company engages independent actuaries to calculate the annual year end obligation. The present value is determined by discounting the estimated future payments using market yields on high quality corporate bonds that are denominated in sterling and that have terms approximating the estimated period of the future payments ( discount rate ).

The fair value of scheme assets is measured in accordance with the FRS 102 fair value hierarchy and in accordance with the Company s policy for similarly held assets. This includes the use of appropriate valuation techniques.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to other comprehensive income. These amounts together with the return on scheme assets, less amounts included in net interest are disclosed as Re-measurement of net defined benefit liability/asset .

The cost of the defined benefit scheme is recognised in the income statement as employee costs except where included in the cost of an asset and comprises:

1. The increase in pension benefit liability arising from employee service during the period; and
2. The cost of scheme benefit changes, curtailments and settlements.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of scheme assets. The cost is recognised in the income statement within net interest expense.

Related party disclosures

The Company is applying the exemption available under FRS 102 section 33.11, which exempts the Company from reporting related party transactions, balances and commitments with a state that controls it, and with other entities that are related parties because the same state has control over them.

4 Critical accounting judgements, estimates and assumptions

Estimates and judgements are continually evaluated and

are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.

In the process of applying the Company s accounting policies the critical judgements applied by the Company are detailed below.

(i) Tangible or intangible assets ready for use

Due to the nature of certain contracts for example timing delays, specific contractual obligations or payment schedules and the nature of the assets in question, the Company occasionally has to apply judgement in deciding the point at which the asset was deemed ready for use. See notes 3, 5 and 6 for further details on tangible and intangible assets.

The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next reporting period are addressed below.

1. Defined benefit pension scheme

The Company has an obligation to pay pension benefits to certain employees. The cost of these benefits and the present value of the obligation depend on a number of factors, including life expectancy, salary increases, asset valuations and the discount rate on corporate bonds. Management obtains estimates of these factors in determining the net pension obligation in the statement of financial position. The assumptions reflect historical experience and current trends. See note 15 for disclosures relating to the defined benefit pension scheme and estimates used.

2. Unbilled income accrual

The Company invoices its customers daily on a cyclical basis. On average customers will receive a bill covering a 90 day period. The Company makes an estimate of income due on unbilled water consumption at the reporting date. See note 9 for the carrying amount of accrued income.

3. Useful economic lives of intangible and tangible assets

The annual amortisation and depreciation charge for intangible and tangible assets respectively is sensitive to changes in the estimated useful economic lives and residual values of the assets. The useful economic lives and residual values are re-assessed annually. These are amended

when necessary to reflect current estimates, based on technological advancement, future investments, economic utilisation and the physical condition of the assets. See notes 5 and 6 for the carrying amount of the intangible assets and property, plant and equipment, and note 3 for the useful economic lives for each class of assets.

4. Inventory provision

Inventory is assessed at the end of each reporting period for impairment, recognising an impairment loss where there is evidence of damage, obsolescence or decline in recoverable value. The item will be measured at its selling price less costs to sell. See note 8 for the carrying amount of inventory and associated provision.

5 Intangible assets

Software Intangible  Total

uncompleted  

works

Cost £ 000 £ 000 £ 000 Brought forward  604 29 633 Additions 12 29 41 Disposals (152) - (152) Transfers 2 (24) (22)

______ ______ ______

Carried forward __£466____ ____34__ __£500____

Amortisation £ 000 £ 000 £ 000 Brought forward  (491) - (491) Charge for the year (59) - (59) Disposals 152 - 152

______ ______ ______

Carried forward _£(398)_____ ____£ -__ _£(398)_____

Net book value

Bought forward £113  £29 £142 ______ ______ ______

Carried forward ___£68 ___ ___£34___ __£102____

6 Tangible assets

Property and  Tangible  Motor vehicles,   Total

completed   uncompleted   mobile plant &

works works equipment

£ 000 £ 000 £ 000 £ 000

Cost or valuation

Brought forward  101,771 6,552 2,623 110,946 Additions 1,637 1,475 121 3,233 Disposals (530) - (321) (851) Transfers 7,071 (7,061) 12 22

__________ __________ __________ __________

Carried forward _£109,949_________ _____ £966_____ ____£2,435______ _£113,350_________

Depreciation

Brought forward (34,511) - (1,822) (36,333) Charge for the year (1,977) - (210) (2,187) Disposals 513 - 319 832 Impairment - - - -

_________ __________ __________ __________

Carried forward _£(35,975)________ ________£ -__ ___£(1,713)_______ __£(37,688)________

Net book value

Brought forward £67,260 £6,552 £801 £74,613

_________ __________ __________ __________

Carried forward _£73,974________ ______£966____ ______£722____ __£75,662________ Included within fixed assets is £253k (2016: £193k) relating to internal labour costs capitalised in the year.

During the year the desalination plant completed its construction phase, as a result £6,693k (2016: nil) was transferred from tangible uncompleted works to Property and completed works.

At 31 December 2017 capital commitments contracted for amounted to £445k (2016: £244k).

7 Freehold investment property

Freehold investment property

£ 000

Cost or valuation

Brought forward 675 Additions - Disposals - Revaluation - Transfers -

______

Carried forward £675

______ The Company owns one freehold residential investment property containing two units.

In 2016 one further residential property was reclassified from investment property to tangible fixed assets due to a change in use. The property was reclassified at its market value of £350k and depreciated on the basis of this value from the time of the change in use. £329k relating to historic revaluation gains on this property was moved from the revaluation reserve to retained earnings in line with this change in classification. The property was subsequently valued in 2016 by an external valuer, Buckley

& Co Limited, on the basis of open market value. The net book value of this property was impaired by £45k to reflect the revised market value as at 31 December 2016.

The remaining freehold investment property was valued in 2016 by an external valuer, Buckley & Co Limited, on the basis of open market value in accordance with the requirements of the Royal Institution of Chartered Surveyors (RICS) Appraisal and Valuation Standards. Management reviewed the value of the properties in light of market movements in 2017 and no revaluation gain or loss was recognised at 31 December 2017 (2016: £45k loss).

The rental income arising from the properties during the year was £34k (2016: £32k), with maintenance and repair costs of £6k (2016: £9k). The Company is obliged to keep the premises wind and water tight, in a good state of condition and repair and structurally sound.

8 Inventories

2017 2016

£ 000 £ 000

Inventory 912 1,118 Provision for impairment (296) (478)

_____ _____

£616 £640 _____ _____

Inventory includes desalination plant spares, pipes and fittings, chemicals, meters, fuel and other materials which will be consumed in the course of daily operations.

9 Trade receivables

2017 2016

£ 000 £ 000

Trade debtors 1,099 1,391 Prepayments 279 389 Accrued income 1,724 1,613 Other debtors 8 30

_______ _______

£3,110 £3,423 _______ _______

Accrued income relates solely to unbilled measured water. The fair value of trade and other receivables is considered by the Directors to be equivalent to its carrying value because of their short term nature.

10 Creditors and accruals

2017 2016

£ 000 £ 000

Trade payables 640 617 Taxation and social security 174 221 Other creditors 367 567 Contract retentions 243 248 Accruals and deferred income 786 470

_______ _______

£2,210 £2,123 _______ _______

Trade payables and accruals relate to amounts owed to various suppliers through the normal course of business. Deferred income amounts to £115k (2016: £122k) and relates solely to water charges which have been paid in advance.

The fair value of trade and other payables is considered by the Directors to be equivalent to its carrying value because of their short term nature.

11 Bank loans

Repayment Dates 2017 2016

£ 000 £ 000

Facilities drawn down

HSBC Bank plc 2021 5,250 5,250 HSBC Bank plc 2023 6,000 6,000 HSBC Bank plc 2025 3,650 3,650

________ ________

_£_1_4_,_9_0_0_ _£14,900_______

Loans falling due within one year - - Loans falling due between one and two years - - Loans falling due after two years but less than five years 5,250 - Loans falling due after five years 9,650 14,900

________ ________

£14,900 £14,900 ________ ________

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 £16,200k taken out to fund the Company s capital works programmes.

12 Financial instruments

The Company has the following financial instruments:

2017 2016

£ 000 £ 000

Financial assets that are debt instruments measured at amortised cost 1,130 1,452 Financial liabilities at fair value through profit or loss 270 414 Financial liabilities that are measured at amortised cost 22,119 22,154

Derivative financial instruments

In October 2011, the Company entered into an interest rate swap contract with HSBC Bank Plc in order to hedge against the interest rate exposure of the Company on the loan of £5,250k maturing in 2021. The interest rate swap contract has a nominal value of £5,250k and also matures in 2021. The fair value used by the Company to value to swap is provided by HSBC Bank Plc and is calculated as the net present value of future cash flows expected to be paid or received under the swap contract.

HSBC Bank plc valued the derivative on 31 December 2017 as a liability of £270k (2016: £414k), generating a fair value movement in comprehensive income in the year of £144k (2016: £128k loss).

13 Share capital

1. Equity share capital

Shares of   2017 2016 £0.50 each

 000 £ 000 £ 000 Authorised, issued & fully paid up

Ordinary shares 5,040 2,520 2,520 A Ordinary shares 4,620 2,310 2,310

______ _______ _______

9,660 £4,830 £4,830 ______ _______ _______

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.

2. Non-equity preference share capital

2017 2016

£ 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

_______ _______

£5,703 £5,703 _______ _______

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

_______ _______

£5,382  £5,382 _______ _______

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 the holder, irrespective of the number and class of such preference shares.

14 Deferred taxation

2017 2016 Note £ 000 £ 000

Accelerated capital allowances 6,495 6,239 Derivative financial liabilities (54) (83) Asset arising from pension surplus/deficit (47) (588)

_______ _______

Net liability £6,394 £5,568 _______ _______

Brought forward 5,568 6,264 Amounts charged in the income statement 21a 256 174 Amounts charged/(credited) in comprehensive income 21b 570 (870)

_______ _______

At 31 December £6,394 £5,568

_______ _______ The net deferred tax liability expected to reverse in 2018 is £280k. This relates to the reversal of timing differences on fixed assets.

15 Pensions

During the year the Company operated 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 benefit scheme is a section of The Jersey Water Pension Plan. The plan is administered by trustees who are responsible for ensuring that the Plan is sufficiently funded to meet current and future obligations. The Company has agreed a funding plan with the trustees, whereby ordinary contributions are made into the scheme based on a percentage of active employees salary. Additional contributions are agreed with the trustees to reduce the funding deficit where necessary.

The defined contribution scheme was opened to new members on 1 May 2003. It was a section of The Jersey Water Pension Plan until March 2016 when it was transferred under a Master Trust arrangement to the Blue Riband Channel Islands Retirement Plan, established and administered by BWCI Pension Trustees Limited.

Defined contribution section

Employer contributions during the period to 31 December 2017 totalled £158k (2016: £154k).

Defined benefit section and unfunded scheme

The full actuarial valuation as at 31 December 2017 shows a net deficit of £236k compared to a net deficit of £2,942k at 31 December 2016.

The major assumptions used by the independent actuary were:

2017 2016 Rate of increase in salaries 2.98% 3.11% Rate of increase in pensions accrued after 1 January 1999 2.93% 3.01% Discount rate 2.47% 2.57% Inflation assumption 2.98% 3.11% Life expectancy assumptions

Current pensioners at 65 - Male 87 88 Current pensioners at 65 - Female 90 91 Future Pensioners at 65 - Male 89 90 Future pensioners at 65 - Female 92 93

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.

Assets Liabilities Total

£ 000 £ 000 £ 000

Reconciliation of the present value of scheme assets and liabilities

At 1 January 2017 26,450 Benefits paid (926) Employer contributions 215 Current service costs - Employee contributions 64 Past service costs - Interest income/(expense) 671 Re-measurement gains/(losses)

- Actuarial gains -

- Return on plan assets excluding interest income 1,829 ________

As at 31 December 2017 £28,303

________

(29,392) (2,942) 926 -

- 215

(428) (428)

(64) -

- -

(744) (73)

1,163 1,163

- 1,829

_________ ________

£(28,539) £(236) _________ ________

Assets Liabilities Total

£ 000 £ 000 £ 000

Analysis of funded and wholly unfunded scheme assets and liabilities

Funded scheme 28,303 (28,534) (231) Wholly unfunded scheme - (5) (5)

________ _________ ________

Total present value of scheme liabilities £28,303 £(28,539) £(236) ________ _________ ________

Total cost recognised as an expense within the income statement

2017 2016

£ 000 £ 000

Current service cost  (428) (299) Interest (expense)/income within net interest expense (73) 53

________ ________

Total £(501) £(246)

________ ________

Current service cost, past service cost and curtailments are included within operating expenditure in the income statement. Net interest income / (expense) on pension plan assets and interest on pension plan liabilities are shown within interest receivable or payable in the income statement. No amounts (2016: nil) were included in the cost of the assets.

Total income/(expense) recognised with other comprehensive income

2017 2016

£ 000 £ 000

Re-measurement gains/(losses)

- Actuarial gains/(losses) 1,163 (6,158)

- Return on plan assets excluding interest income 1,829 1,956 ________ ________

Total re-measurement gains/(losses) £2,992 £(4,202) ________ ________

Analysis of scheme assets 2017 2016

% of total fair  % of total fair

value of scheme value of scheme assets assets

Equities 31% 31% Property 6% 6% Corporate bonds 62% 62% Cash and receivables 1% 1%

________ ________

100% 100% ________ ________

The fair value of the plan assets was: 2017 2016

£ 000 £ 000

Equities 8,973 8,269 Property 1,713 1,605 Corporate bonds 17,451 16,357 Cash and receivables 166  219

________ ________

£28,303 £26,450 ________ ________

Return on plan assets: 2017 2016

£ 000 £ 000

Interest income 671 903 Return on plan assets less interest income 1,829 1,956

_______ ______

Total return on plan assets £2,500 £2,859

_______ _______ Funding of the defined benefit pension scheme

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 income statement under FRS 102. During the year, the Company made scheduled retirement benefit contributions into the defined benefit scheme totalling £215k (2016: £227k).

Following the results of the last triennial valuation as at 1 January 2015, the contribution rate for 2015, 2016 and 2017 was set at 14.9% of pensionable salaries (after an initial three month period of 15.1%).

16 Turnover

2017 2016

£ 000 £ 000

Measured water charges 14,084 13,516 Unmeasured water charges 425 825 Service charges and other charges for water 662 604

________ ________

Total water supply charges 15,171 14,945 Rechargeable works income 473 428 Other income 316 347

________ ________

Turnover _£_1_5_,_9_6_0_ _£15,720_______

17 Operating expenditure

2017 2016 Note £ 000 £ 000

Included in operating expenditure are the following:

Net employment costs 4,038 3,795 Impairment of tangible fixed assets - 45 Impairment of inventory 34 (50) Amortisation & depreciation 2,167 2,000 Accelerated depreciation 3 79 243 Materials, consumables, hired in services and other costs 4,582 4,463 Directors fees 140 115 Auditor s fees - Statutory audit 60 74

- Other services (Tax compliance) - 5

- Other services (Pension scheme audit) 8 6 ________ ________

Total operating expenditure £11,108 £10,696

________ ________

18 Net employment costs

2017 2016

£ 000 £ 000

Wages, salaries and other payments 3,497 3,347 Social Security 208 202 Pension contributions 586 439

_______ _______

4,291 3,988

Less amount capitalised within fixed assets (253) (193)

_______ _______ Net employment costs £4,038 £3,795

_______ _______

19 Net interest expense

1. Interest receivable

2017 2016

£ 000 £ 000

Bank interest received 5 5 Net interest income on pension obligations - 53

_______ _______

Total interest receivable and similar charges  £5 £58 _______ _______

2. Interest payable and similar charges

2017 2016

£ 000 £ 000

Bank loans and overdrafts 240 261 Net interest expense on pension obligations 73 - Interest rate swap contract 109 102

_______ _______

Total interest payable and similar charges  £422 £363 _______ _______

20 Non-equity dividends 2017 2016

Paid Payable Charge for  Paid Payable Charge for

the year the year

£ 000 £ 000 £ 000 £ 000 £ 000 £ 000

5% cumulative preference shares

3.5% cumulative second preference shares 3% cumulative third preference shares 3.75% cumulative third preference shares 5% cumulative third preference shares 2% cumulative fourth preference shares 10% cumulative fifth preference shares

Total dividends on non-equity shares recognised in the year

3 1 2 1 3 - 2 - 2 - 7 -

360 - _______ _______

£379 £2 _______ _______

4 4 - 4 3 3 - 3 3 3 - 3 2 2 - 2 2 2 - 2 7 7 - 7

360 360 - 360 ________ ________ _______ _______

£381 £381 £- £381 ________ ________ _______ _______

21 Jersey income tax

1. Tax expense included in the income statement

2017 2016

£ 000 £ 000

Current tax

Income tax on the profit for the year 555 773 Adjustment in respect of prior periods - (25)

Deferred tax

Charge for the year  256 174 _______ _______

Total tax profit on ordinary activities £811 £922 _______ _______

2. Tax expense/(income) included in other comprehensive income

2017 2016

£ 000 £ 000

Current tax

Movements relating to pension deficit 57 3 Deferred tax

Movement on deferred tax relating to interest rate swap 29 (26) Movement on deferred tax relating to pension deficit 541 (844)

_______ _______

Total tax expense/(income) included in other comprehensive income £627 £(867)

_______ _______

Factors affecting tax charge for year

The tax assessed for the year is higher than the standard rate of Jersey income tax (20%) (2016: 20%) applicable to utility companies. The differences are explained below:

2017 2016

£ 000 £ 000

Profit before tax 4,107 4,256 _______ _______

Profit before tax multiplied by the standard rate of Jersey income tax of 20% 822 851 Tax at 20% on:

Depreciation for the period in excess of capital allowances (181) (50) Capital expenditure, deductible for tax purposes (151) (120) Impairment of fixed assets - 9 (Profit)/Loss on disposal of fixed assets (11) 7 Dividends on non-equity shares - non deductible 76 76

_______ _______

555 773

Less prior year over provision - (25)

_______ _______

Current tax for year 555 748 Accelerated capital allowances 256 174

_______ _______

Total tax charge for year £811 £922 _______ _______

22 Basic and diluted earnings per ordinary share

Basic and diluted earnings per ordinary share of £0.34 (2016: £0.35) is based on earnings of £3,296k (2016: £3,334k), being the profit available for distribution to equity shareholders and 9,660,000 (2016: 9,660,000) ordinary and A ordinary shares of £0.5 in issue.

23 Equity dividends

Ordinary and A Ordinary shares

Dividends paid

Final dividend for the previous year Interim dividend for the current year

2017 Pence per share

13.559

6.922 _______

2016 2017 2016 Pence per share £ 000 £ 000

13.260 1,310 1,281

6.786 668 655 _______ _______ _______

20.481 20.046 £1,978 £1,936 _______ _______ _______ _______

Dividends proposed

Final dividend for the current year 13.932 13.559 £1,346 £1,310 _______ _______ _______ _______

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.

24 Notes to the statement of cash flows

Profit for the reporting period

Tax on profit on ordinary activities Non-equity dividends

Net interest expense

Loss on revaluation of investment property (Profit)/loss on disposal of fixed assets

Operating profit

Depreciation and amortisation

Change in order to bring pension charges onto a contribution basis Decrease/(increase) in inventories

Decrease/(increase) in trade receivables

Increase/(decrease) in creditors

Net cash inflow from operating activities

2017 2016

£ 000 £ 000

3,296 3,334 811 922 381 381 417 305

- 45

(53) 37

_______ _______

4,852 5,024 2,246 2,288

213 70 24 (160) 171 (154)

335 (43) _______ _______

£7,841 £7,025 _______ _______

25 Directors emoluments

During the year the Company made pension contributions of £22k in respect of Helier Smith and £8k in respect of Natalie Passmore. Benefits for Mr Smith consist of motor fuel, private health care, prolonged disability and death in service insurance.

Natalie Passmore was appointed as Finance Director on 11 May 2017. Benefits for Mrs Passmore consist of private health care, prolonged disability and death in service insurance.

26 Related parties

The Company shares a common controlling shareholder, the States of Jersey, with Jersey Post Group, Jersey Telecom, Jersey Electricity, Andium Homes, Ports of Jersey and Jersey Development Company. During the year the Company provided water services and mains and service installations to these entities and several departments of the States of Jersey, and purchased services from Jersey Electricity and Jersey Telecom. All transactions were undertaken on an arm s length basis during the normal course of business.

During the year the Company paid pension benefits on behalf of the Defined Benefit Jersey Water Pension Scheme amounting to £120k (2016: £225k) on the basis it would be fully reimbursed by the Scheme. At 31 December 2017, the net balance owed to the scheme is £50k.

The remuneration of key management personnel (which is defined as the Executive and Non-Executive Directors) is set out in note 25 above.

27 Ultimate controlling party

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

28 Events after the end of the reporting date

On 16 February 2018 the Company purchased the entire issued share capital of De La Haye Plant Limited for £260k via its wholly owned subsidiary Handois Holdings Limited. De La Haye Plant Limited operates solely within Jersey providing tankered potable water, swimming pool filling and refilling and building site bulk water supply services. The Company intends to continue operating this business as a wholly owned subsidiary company under its existing trading name.

Five Year Summary

Five Year Summary (Unaudited)

Units 2017 2016 2015 2014 2013[1]

Statement of financial position

Total equity £ 000 53,805 49,978 52,043 48,383 48,289 Net Debt £ 000 16,900 18,105 17,119 14,780 15,684

Income statement

Turnover £ 000 15,960 15,720 15,373 15,184 14,916 Operating profit   £ 000 4,852 5,024 4,841 4,971 4,800

(before exceptional items)

Profit before tax £ 000 4,107 4,256 4,074 4,242 4,318 Profit for the reporting period £ 000 3,296 3,334 3,336 3,390 3,438 Equity dividends paid £ 000 1,978 1,936 1,902 1,842 1,789

Financial statistics & ratios

Capital expenditure £ 000 3,275 4,589 6,611 2,880 2,878 Net cash inflow / (outflow)  £ 000 1,061 (860) (2,383) 4,736 (1,555) Earnings per share £ 0.34 0.35 0.35 0.35 0.36 Dividend cover Times 1.7 1.7 1.8 1.8 1.9 Interest cover Times 6.1 7.2 6.3 6.6 5.6 Gearing2  % 42 41 40 42 42

Operational statistics

Total water supplied Ml 7,327 7,567 7,294 7,080 7,047 Maximum daily demand Ml 25.9 25.6 25.0 24.0 24.8 Annual rainfall mm 1,027 986 964 1,045 939 New mains laid km 1.9 2.3 0.2 1.6 1.5 Mains re-laid/relined km 2.1 2.0 2.5 3.5 2.5 New connections No. 303 374 506 403 406 Live unmeasured supplies 000 0 2 5 6 10 Live metered connections 000 33 33 32 31 28 Employees No. 83 81 80 82 80

Water quality

% Compliance with water quality parameters 99.98% 99.99% 99.99% 99.99% 99.84%

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

T: 01534 707300 E: customerservices@jerseywater.je  www.jerseywater.je

Jersey Water is the trading name of The Jersey New Waterworks Company Limited.