Anglian Water Services Financing Plc · Anglian Water Services Financing Plc Strategic Report for the Year Ended 31 March 2015 1 The directors present the Strategic Report for the

Anglian Water Services Financing Plc Annual Report and Financial Statements

for the year ended 31 March 2015 Registration number: 04330322

Anglian Water Services Financing Plc

Strategic Report for the Year Ended 31 March 2015

1

The directors present the Strategic Report for the year ended 31 March 2015.

Business review Fair review of the business The principal activity of the company is the raising of listed debt to on-lend to Anglian Water Services Limited and it forms part of the group of four companies referred to as the Anglian Water Services

Financing Group (“AWSFG”) as shown below. Anglian Water Services Holdings Limited Anglian Water Services Overseas Holdings Limited

Anglian Water Services Limited


The company raised £185.0 million of new debt during the year as part of its ongoing funding requirement and repaid £60.8 million of debt. The monies raised were on-lent to Anglian Water Services Limited on a back-to-back basis. As at 31 March 2015 the company had cash and deposits amounting to £1.2 million (2014: £1.2 million). The company is a wholly owned subsidiary of AWG Group Limited and was put in place in 2002, when Anglian Water Services Limited’s covenanted and ring-fenced debt structure was established. The AWSFG

provides protection for the customers of the principal trading company in the group, Anglian Water Services Limited, and bond holders of the company from risks associated with other non-regulated Anglian Water Group companies outside of the ring-fence. The profit and loss account on page 7 shows the company’s results for the year. For the financial year ended 31 March 2015 the company made a profit on ordinary activities before taxation of £0.4 million

(2014: £0.5 million).

Given the nature of the business, the directors are of the opinion that analysis using KPIs is not necessary for an understanding of the development, performance or position of the business. Principal risks and uncertainties

The management of the business and execution of the company’s strategy are subject to a number of risks, the principal risks being management of liquidity, interest rate and foreign currency exposure. Liquidity The company’s objective is to maintain flexibility, diversification and continuity of funding through access to different markets and debt instruments. At the year end the company held cash at bank and in hand of

£ 1.2 million (2014: £1.2 million) and had undrawn committed working capital and capital expenditure facilities of £500.0 million (2014: £420.0 million). Cash is held on deposit by the company to the extent required to meet near term debt repayments. These resources are maintained to ensure liquidity and the continuation of the Anglian Water Services Limited investment programme. The maturity profile of the company’s borrowings is set out in note 10 to the financial statements. In addition the company has access to a further £375.0 million (2014: £375.0 million) of ‘liquidity facilities’; £279.0 million (2014:

£279.0 million) to finance Anglian Water Services Limited debt service costs and £96.0 million (2014: £96.0 million) to finance Anglian Water Services Limited operating expenditure and maintenance capital expenditure. These facilities address the risk of Anglian Water Services Limited being in default of its debt obligations and having insufficient liquidity.


Strategic Report for the Year Ended 31 March 2015 (continued)

2

Principal risks and uncertainties (continued)

Interest rates

The company’s policy, as agreed by the board, is to achieve a balanced mix of funding at indexed (to the

Retail Price Index), fixed and floating rates of interest to appropriately address the risks in the parent

company’s business. This includes the use of interest rate swaps, to manage the company’s exposure to

interest rate fluctuations. At the year end, taking into account interest rate swaps, 56.9% (2014: 54.5%)

of the company’s borrowings were at rates indexed to inflation, 34.4% (2014: 36.4%) were at fixed rates,

and 8.7% (2014: 9.1%) were at floating rates.

Foreign currency

The company has currency exposures resulting from debt raised in currencies other than sterling and very

small purchases in foreign currencies. The company uses a range of instruments to hedge such exposures.

All hedges are undertaken for commercial reasons with the objective of minimising the impact of exchange

rate fluctuations on net assets and profits. The company has no material unhedged monetary assets and

liabilities denominated in a currency different from the local currency of the company.

Approved by the Board on 29 May 2015 and signed on its behalf by:

.........................................

Claire Russell

Company secretary


Directors’ Report for the Year Ended 31 March 2015

3

The directors present their report and the audited financial statements for the year ended 31 March 2015. Future developments The directors expect the activities as detailed in the Strategic Report to continue in the foreseeable future without material change.

Directors of the company The directors who held office during the year and up to the date of signing the financial statements were as follows: Stephen Billingham (Chairman, appointed 26 November 2014) Scott Longhurst

Peter Simpson Chris Newsome Jean Spencer Christopher Garnett Robert Napier

John Watkinson Paul Whittaker

Sir Adrian Montague (resigned 22 January 2015) Veronica Courtice ( appointed 1 April 2015) Steve Good (appointed 1 April 2015) John Hirst ( appointed 1 April 2015) Directors’ liabilities The company maintains Directors’ and Officers’ liability insurance which gives appropriate cover for legal

action brought against its directors. The company has also provided an indemnity for its directors, which is a qualifying third party indemnity provision for the purpose of section 234((2) – (6)) of the Companies Act 2006. Dividends No dividend was paid during the year (2014: £nil). The directors are not recommending the payment of a

final dividend (2014: £nil).

Financial risk management Objectives and policies The company does not operate externally to the Anglian Water Services Financing Group (“AWSFG”) and therefore its financial risks are governed by the AWSFG’s policies and procedures. These policies and procedures are discussed within the Anglian Water Services Limited consolidated group financial

statements. Liquidity risk and cash flow risk Liquidity, interest rate and foreign currency risk are detailed within the Strategic Report. Disclosure of information to the auditors Each director has taken steps that they ought to have taken as a director in order to make themselves

aware of any relevant audit information and to establish that the company's auditors are aware of that information. The directors confirm that there is no relevant information that they know of and which they know the auditors are unaware of. Reappointment of auditors The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a

resolution concerning their re-appointment will be proposed at the Annual General Meeting. Approved by the Board on 29 May 2015 and signed on its behalf by: .........................................

Claire Russell Company secretary


Statement of Directors’ Responsibilities

4

The directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally

Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they 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 are required to: select suitable accounting policies and then apply them consistently;

make judgements and accounting estimates that are reasonable and prudent;

state whether applicable UK Accounting Standards have been followed, subject to any material

departures disclosed and explained in the financial statements; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that

the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. 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 ensuring that the Strategic Report, the Directors' Report and Financial Statements are published and where they are published on the internet, for the maintenance and integrity of the company's website. Uncertainty regarding legal requirements is compounded as information published on the internet is accessible in many countries with different legal requirements relating to the preparation and dissemination of financial statements.


Independent Auditors’ Report to the Members of


5

Report on the financial statements Our opinion In our opinion the financial statements, defined below:

give a true and fair view of the state of the company's affairs as at 31 March 2015 and of its profit and cashflows for the year then ended;

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

have been prepared in accordance with the requirements of the Companies Act 2006.

What we have audited The financial statements, which are prepared by Anglian Water Services Financing Plc, comprise:

Balance Sheet as at 31 March 2015; Profit and Loss Account for the year then ended; Cash Flow Statement for the year then ended; and

the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

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

Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the directors have made a number of subjective

judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Other matters on which we are required to report by exception Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion:

we have not received all the information and explanations we require for our audit; or adequate accounting records have not been kept, or 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. We have no exceptions to report arising from this responsibility.

Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of

directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Responsibilities for the financial statements and the audit Our responsibilities and those of the directors As explained more fully in the Statement of Directors’ Responsibilities set out on page 4, the directors are

responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with

applicable law and International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.


Independent Auditors’ Report to the Members of

Anglian Water Services Financing Plc continued

6

What an audit of financial statements involves We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of:

whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed;

the reasonableness of significant accounting estimates made by the directors; and

the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider

necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report and Financial Statements to identify material inconsistencies with the audited financial statements and to identify any

information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. ..................................... John Maitland (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors Birmingham 29 May 2015


Profit and Loss Account

for the Year Ended 31 March 2015

7

2015

Restated 2014

Notes £m £m

Turnover - -

Operating costs - -

Operating profit - -

Finance costs

4 Interest receivable and similar income 283.0 320.6

5 Interest payable and similar charges (282.6) (320.1)

Net interest receivable 0.4 0.5

Profit on ordinary activities before taxation 0.4 0.5

6 Tax on profit on ordinary activities - -

13 Profit for the financial year 0.4 0.5

The company has no recognised gains or losses for the year other than the results above and therefore no separate statement of total recognised gains and losses has been presented. There is no material difference between the profit on ordinary activities before taxation and the profit for

the financial year stated above and their historical cost equivalent.


Balance Sheet

(Registration number: 4330322)

At 31 March 2015

8

Restated

2015 2014

Notes £m £m

Fixed assets

7 Investments 6,000.4 5,993.7

10 Derivative financial instruments 942.2 637.6

6,942.6 6,631.3

Current assets

7 Investments 346.1 159.2

10 Derivative financial instruments 44.0 39.5

8 Debtors 66.6 66.2

Cash at bank and in hand 1.2 1.2

457.9 266.1

Creditors: amounts falling due within one year

10 Short-term borrowings (346.1) (159.2)

10 Derivative financial instruments (44.0) (39.5)

9 Other creditors (21.1) (21.1)

(411.2) (219.8)

Net current assets 46.7 46.3

Total assets less current liabilities 6,989.3 6,677.6

Creditors: amounts falling due after more than one year

10 Loans and other borrowings (6,000.4) (5,993.7)

10 Derivative financial instruments (942.2) (637.6)

(6,942.6) (6,631.3)

Net Assets 46.7 46.3

Capital and reserves

11 Called up share capital - -

13 Reserves 46.7 46.3

12 Total shareholders' funds 46.7 46.3

The notes on pages 11 to 25 form an integral part of these financial statements.

Approved by the Board on 29 May 2015 and signed on its behalf by: ......................................... Peter Simpson

Director

......................................... Scott Longhurst Director


Cash Flow Statement

for the Year Ended 31 March 2015

9

2015 2014

Notes £m £m

Returns on investments and servicing of finance

Interest received 211.4 226.2

Interest paid (211.4) (226.0)

Net cash inflow from returns on investments and servicing of finance - 0.2

Capital expenditure and financial investment

Loan repayment from parent 60.8 650.8

Loans to parent (185.0) (403.8)

Movement on intercompany account - (36.5)

Net cash inflow for capital expenditure and financial investment (124.2) 210.5

Net cash inflow before management of liquid resources and financing (124.2) 210.7

Management of liquid resources

(b) Decrease in short-term deposits and investments - 20.0

Financing

(b) Increase in amounts borrowed 185.0 403.8

(b) Repayment of amounts borrowed and RPI swaps (60.8) (650.8)

Net cash (outflow)/inflow from financing 124.2 (247.0)

Decrease in cash - (16.3)

Notes (a) to (b) form part of this cash flow statement.


Notes to the Cash Flow Statement

for the year ended 31 March 2015

10

(a) Analysis of net debt

Restated At At

1 April Cash Non-cash 31 March

2014 flows movements 2015

£m £m £m £m

Cash at bank and in hand 1.2 - - 1.2

Short-term borrowings (159.2) 60.8 (247.7) (346.1)

Loans and other borrowings due after more than one year (5,993.7) (185.0) 178.3 (6,000.4)

(6,151.7) (124.2) (69.4) (6,345.3)

Non-cash movements comprise indexation of index-linked loan stock, transfers between categories

of debt, movement in interest accruals on borrowings and exchange rate adjustment to borrowings.

(b) Movement in net debt

2015

Restated 2014

£m £m

At 1 April (6,151.7) (6,379.9)

Decrease in cash - (16.3)

Decrease in short-term bank deposits and investments - (20.0)

Increase in amounts borrowed (185.0) (403.8)

Repayment of amounts borrowed 60.8 553.2

Indexation of loan stock (54.8) (72.5)

Movement in interest accruals on borrowings 2.2 10.9

Exchange rate adjustment to borrowings (16.8) 176.7

At 31 March (6,345.3) (6,151.7)


Notes to the Financial Statements for the Year Ended 31 March 2015

11

1 Accounting policies

Basis of preparation The financial statements are prepared on a going concern basis under the historical cost convention

as modified by the revaluation of derivative financial instruments at fair value, and in accordance with applicable accounting standards (UK GAAP) and with the Companies Act 2006. The following principal accounting policies and estimation techniques have been consistently applied to the financial statements as stated. During the year the company has changed the way it classifies and values its derivatives and the 2014 figures have been restated.

The directors have undertaken a detailed review to assess the liquidity requirements of the company compared against the cash and facilities available, and have reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Change in accounting policy

It has been assessed that the intercompany loan with Anglian Water Services Limited contains non-closely related embedded derivatives, which are separated from the host loan agreement contract. All borrowings and derivatives are therefore replicated on identical terms between the two companies, resulting in a net neutral impact on the profit and loss account and the balance sheet.

Derivative valuation methodology has been amended to incorporate the impact of credit risk into the

valuation. Anglian Water Services Limited prepares its entity and consolidated accounts under

International Financial Reporting Standards (IFRS) and International Financial Reporting

Interpretations Committee (IFRIC) interpretations, as adopted by the European Union. Under these,

it is required to value its derivatives incorporating the impact of credit risk. To ensure the back to

back nature of the derivatives between the two companies is preserved resulting in equal and

opposite asset and liability valuation figures, the valuation methodology in Anglian Water Services

Financing Plc has been revised to also incorporate the impact of credit risk. The 2014 figures have

been restated in line with the revised methodology.

The impact of credit risk on the profit and loss account is to increase in interest payable and

interest receivable by £79.6 million. On the balance sheet derivative assets have decreased by £4.8

million and derivative liabilities have decreased by £4.8 million.

The impact of embedded derivatives on the balance sheet is to increase in investments by £48.0

million, decrease derivative assets by £75.6 million and decrease in derivative liabilities by £27.6

million.

Borrowings Borrowings are recognised initially at fair value. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Dividends Dividends are recognised as a liability in the period in which they are approved. Interim dividends are recognised in the period in which they are paid.


Notes to the Financial Statements for the year ended 31 March 2015 continued

12

1 Accounting policies (continued)

Fixed asset investments

Investments held as fixed assets represent loans to the immediate parent undertaking (Anglian

Water Services Limited) and reflect the ‘back-to-back’ arrangement with the company, excluding the value of embedded derivatives.

Foreign currencies

Individual transactions denominated in foreign currencies are translated into local currency at the actual exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into local currency at the balance sheet date.

Profits and losses on both individual foreign currency transactions during the year and monetary

assets and liabilities are dealt with in the profit and loss account.

Financial instruments

The company uses derivative financial instruments to hedge its exposure to foreign exchange and interest rate risks arising from financing activities. In accordance with its treasury policy, the

company does not hold or issue derivative financial instruments for trading purposes. Derivatives are initially recognised and subsequently re-measured at fair value. However, within the company, hedge accounting is not applied and therefore the movements in the fair value of these derivatives are included in the profit and loss account within interest payable.

There is a “back-to-back” intercompany loan agreement in place between Anglian Water Services Limited and Anglian Water Services Financing Plc, which passes the financing arrangements of the external debt and derivative positions held by Anglian Water Services Financing Plc to Anglian Water Services Limited. The intercompany loan agreement is deemed to contain a series of cross currency and single currency interest rate swaps to facilitate the transfer of the financing arrangements, which are assessed as being embedded derivatives as defined under FRS26. The swaps meet the FRS26 definition of a non-closely related embedded derivative and are therefore separated from the

host loan agreement contract. The loan agreement is carried at amortised cost and the embedded derivatives are held at fair value through profit and loss.

Anglian Water Services Limited lends cash back to the company to provide the funds for the company to repay its external debt, normally 12 months in advance of debt falling due for payment.

2 Auditors’ remuneration

The auditors’ remuneration for audit services is borne by Anglian Water Services Limited, with no recharge to the company.

3 Particulars of employees

The monthly average number of persons employed by the company (including directors) during the year was nil (2014: nil). Anglian Water Services Limited employees carry out all the activities of the company.



13

4 Interest receivable and similar income

Restated

2015 2014

£m £m

Interest receivable from Anglian Water Services Limited 282.6 320.1

Management fees treated as interest receivable 0.3 0.3

Other interest receivable 0.1 0.2

283.0 320.6

5 Interest payable and similar charges

Restated

2015 2014

£m £m

Indexation on index-linked loans and RPI swaps (71.8) (98.0)

Interest payable on external loans (210.8) (222.1)

(282.6) (320.1)

The company holds Retail Price Index (RPI) swaps to enable the group to hedge against RPI

movement in the Regulated Capital Value (RCV) and revenues of Anglian Water Services Limited.

These RPI swaps do not qualify for hedge accounting under FRS 26 and consequently are held at fair

value with movements taken to the profit and loss account, however, it is the opinion of the

directors that they remain highly effective economic hedges.

The company holds interest rate swaps and cross currency swaps to enable the group to hedge its

exposure to foreign exchange and interest rate risks arising from operational, financing and

investment activity in the group. Within the company hedge accounting is not applied and therefore

the movements in the fair value of these derivatives are included in the profit and loss account. The

company has a “back-to-back” arrangement with Anglian Water Services Limited whereby all

borrowings and derivatives are replicated on identical terms, thus resulting in a net neutral impact

on the profit and loss account.



14

6 Taxation

2015 2014

£m £m

Tax on profit on ordinary activities comprises:

UK corporation tax - current year - -

Factors affecting current tax charge for the year

Tax on profit on ordinary activities for the year is lower than (2014 - lower than) the standard rate of corporation tax in the UK of 21% (2014: 23%).

The differences are reconcilied below:

2015 2014

£m £m

Profit on ordinary activities before taxation 0.4 0.5

Corporation tax at standard rate 0.1 0.1

Group relief not paid for (0.1) (0.1)

It has been agreed that companies within the Anglian Water Services Financing Group (AWSFG) will

not pay each other for tax losses. The AWSFG consists of Anglian Water Services Limited, Anglian

Water Services Financing Plc, Anglian Water Services Holdings Limited and Anglian Water Services

Overseas Holdings Limited.

UK corporation tax rate was reduced from 23% to 21% with effect from 1 April 2014 and this

change was substantively enacted prior to the balance sheet date. A further reduction to 20% with

effect from 1 April 2015 has also been enacted.



15

7 Investments

2015 Restated

2014

£m £m

Amounts due after one year 6,000.4 5,993.7

Amounts due within one year 346.1 159.2

6,346.5 6,152.9

Loans to immediate parent undertaking

£m

At 1 April 2014 (restated) 6,152.9

Additions 185.0

Repaid (60.8)

Non-cash movement on back-to-back arrangement with Anglian Water Services Limited 69.4

At 31 March 2015 6,346.5

8 Debtors

2015 Restated

2014

£m £m

Other debtors 0.1 0.1

Amounts owed by immediate parent undertaking 66.5 66.1

66.6 66.2

Amounts owed by parent undertaking are unsecured, interest free, have no fixed date of repayment and are repayable on demand.

9 Other creditors

Restated

2015 2014

£m £m

Other creditors 21.1 21.1



16

10 Loans, other borrowings and financial instruments

2015

2014

£m

£m

Loans and other borrowings

£200 million 6.875% fixed rate 2023 (c), (e) 208.4 208.4


£150 million 4.125% index-linked 2020 (a), (c), (e) 233.9 228.9






£250 million 5.25% fixed rate 2015 (c), (d) 255.5 255.5

£150 million 5.5% fixed rate 2017/2040 (b), (c), (d)1 153.9 153.9




£40 million 1.7146% indexation bond 2056 (a), (c), (e) 53.2 52.1





£100 million Class A wrapped floating rate bonds (c), (e) 100.2 100.2



JPY 15 billion 2.925% fixed rate bond 2018/2037 (c), (d) 85.0 88.0

£110 million Class A unwrapped floating rate bonds 2043 (c), (e) 110.2 110.1

JPY 5 billion 3.22% fixed rate bond 2019/2038 (c), (d) 28.5 29.5

€500 million 6.25% fixed rate bond 2016 (c), (e) 379.4 432.5

£25 million 6.875% private placements 2034 (c), (e) 25.4 25.4

£100 million Class B 6.75% fixed rate bond 2014/2024 (c), (e)2 - 62.1

EIB £50 million 1.626% index-linked term facility 2019 (a), (c), (e) 60.6 59.6

EIB £50 million 1.3% index-linked term facility 2020 (a), (c), (e) 59.6 58.7

£130 million 2.262% index-linked bond 2045 (a), (c), (e) 152.9 150.4

US$160 million 4.52% private placements 2021 (c), (d) 109.3 97.1

US$410 million 5.18% private placements 2021 (c), (d), (e) 281.3 249.9

EIB £75 million 0.53% index-linked term facility 2027 (a), (c), (e)3 81.1 79.8

EIB £75 million 0.79% index-linked term facility 2027 (a), (c), (e)3 81.1 79.9

£250 million 4.5% fixed rate 2027 (c) 255.5 255.5

£15 million 1.37% index-linked private placements 2022 (a), (c) 16.0 15.7

£50 million 2.05% index-linked private placements 2033 (a), (c) 53.3 52.5

£25.5 million 4.195% private placements 2017 (c) 26.0 26.0




US$47 million 5.0% private placements 2022 (c) 32.5 28.9

EIB £150 million 0% index-linked term facility 2028 (a), (c)4 157.4 154.9

£200 million Class B 4.5% fixed rate 2026 (c), (e) 200.9 200.9

£35 million 1.141% index-linked bond 2042 (a), (c), (d) 36.6 36.0

US$170 million 3.84% private placement 2023 (c), (d), (e) 116.8 103.7

£93 million 3.537% private placement 2023 (c) 94.5 94.5

US$160 million 4.99% private placements 2023 (c), (e) 109.8 97.6

EIB Tranche 2 £125m 0.1% 2029 (a), (c)5 125.8 -

EIB tranche 3 £60m 0.01% 2030 (a), (c)6 60.1 -

EIB £65 million 0.41% index-linked term facility 2029 (a), (c)5 66.3 65.2

Total loans and other borrowings 6,346.5 6,152.9

Less amounts included in creditors falling due within one year (346.1) (159.2)

Loans and other borrowings falling due after more than one year 6,000.4 5,993.7



17

10 Loans, other borrowing and financial instruments (continued)

1 The coupon for this instrument will increase to floating rate 3 month LIBOR plus 3.5% effective October 2017. The bond contains an issuer call option whereby the bond can be redeemed on 10 October 2017 and on any interest payment date from 10 January 2018 for 100% of the nominal amount of the bond.

2 The remaining £60.8 million of the £100.0 million 6.75 per cent Class-B 2024 fixed rate bond was repaid following a tender offer for £39.2 million in March 2013.

3 These instruments are amortising from 2017 until the date of maturity shown. 4 This instrument is amortising from 2018 until the date of maturity shown. 5 This instrument is amortising from 2019 until the date of maturity shown. 6 These instruments are amortising from 2020 until the date of maturity shown.

a) The value of the capital and interest elements of the index-linked loans is linked to movements in the Retail Price Index. The increase in the capital value during the year of £54.8 million (2014: £72.5 million) has been taken to the profit and loss account as part of interest payable.

b) Legal maturity of these instruments is the second of the two years quoted. Coupons increase for

the first of the years quoted in accordance with the pricing terms agreed at issue. c) Under a security agreement dated 30 July 2002 between Anglian Water Services Financing Plc

(AWSF), Anglian Water Services Limited (AWSL), Anglian Water Services Overseas Holdings Limited (AWSOH), Anglian Water Services Holdings Limited (AWSH) and Deutsche Trustee Company Limited a fixed and floating charge was created over the assets of Anglian Water

Services Limited to the extent permissible under the Water Industry Act 1991. In addition there is a fixed charge over the issued share capital of AWSL, AWSOH and AWSF. At 31 March 2015 this charge applies to £6,346.5 million (2014: £6,152.9 million) of the debt listed above.

d) These instruments are exposed to cash flow interest rate risk before taking into account the

impact of interest rate swaps.

e) These instruments are exposed to fair value interest rate risk, before taking into account the impact of interest rate swaps.

Debt issue costs are excluded from the amounts disclosed and borne by the parent company,

Anglian Water Services Limited.



18


Financial instruments by category

The accounting policies for financial instruments have been applied to the line items below:

Restated

2015 2014

Assets at fair value

through the profit and loss

Other financial

assets Total

Assets at fair value


Other financial

assets Total

£m £m £m £m £m £m

Assets as per balance sheet

Cash at bank and in hand - 1.2 1.2 - 1.2 1.2

Debtors - 66.6 66.6 - 66.2 66.2

Investment - loan to immediate parent undertaking - 6,346.5 6,346.5 - 6,152.9 6,152.9

Derivative financial instruments 986.2 - 986.2 677.1 - 677.1

Total 986.2 6,414.3 7,400.5 677.1 6,220.3 6,897.4

Restated

2015 2014

Liabilities at fair value


Other financial liabilities Total

Liabilities at fair value


Other financial liabilities Total

£m £m £m £m £m £m

Liabilities as per balance sheet

Borrowings - (6,346.5) (6,346.5) - (6,152.9) (6,152.9)

Creditors - (21.1) (21.1) - (21.1) (21.1)

Derivative financial instruments (986.2) - (986.2) (677.1) - (677.1)

Total (986.2) (6,367.6) (7,353.8) (677.1) (6,174.0) (6,851.1)

Derivative financial instruments

Restated

2015 2014

Assets Liabilities Assets Liabilities

£m £m £m £m

Interest rate swaps and swaptions 413.7 (413.7) 222.8 (222.8)

RPI swaps 572.5 (572.5) 454.3 (454.3)

Total 986.2 (986.2) 677.1 (677.1)

Derivative financial instruments can be analysed as follows:

Restated

2015 2014

Assets Liabilities Assets Liabilities

£m £m £m £m

Current 44.0 (44.0) 39.5 (39.5)

Non-current 942.2 (942.2) 637.6 (637.6)

Total 986.2 (986.2) 677.1 (677.1)



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The effective interest rate at the balance sheet dates were as follows:

2015 2014

Borrowings - GBP 3.0% 3.3%

Borrowings - USD 4.8% 4.8%

Borrowings - EUR 7.0% 7.0%

Borrowings - JPY 0.7% 4.4%

The weighted average interest costs at the balance sheet dates were as follows:

2015 2014

Fixed 5.7% 5.7%

Floating 2.4% 3.1%

Indexed 2.0% 2.3%

In accordance with FRS 26, 'Financial Instruments: Measurement', the company has reviewed all contracts for embedded derivatives that are required to be separately accounted for if they do not meet certain requirements set out in the standard. It has been assessed that the intercompany loan agreement in place between Anglian Water Services Limited and Anglian Water Services Financing Plc, which passes the financing arrangements of the external debt and derivative positions held by Anglian Water Services Financing Plc to Anglian Water Services Limited, contains non-closely related embedded derivatives, which are separated from the host loan agreement contract. All borrowings

and derivatives are therefore replicated on identical terms between the two companies, resulting in a net neutral impact on the profit and loss account.

There were no other amounts recorded in the profit and loss account for gains and losses on embedded derivatives in the year ended 31 March 2015 (2014: £nil).

Interest rates swaps and swaptions The notional principal amount of the outstanding interest rate swap contracts at 31 March 2015 was £3,869.4 million (2014: £3,053.3 million) and outstanding swaptions at 31 March 2015 was £300.0 million (2014: £300.0 million)

The notional foreign currency principal amount of the outstanding cross currency interest rate swap contracts at 31 March 2015 was USD 947.0 million (2014: USD 947.0 million), EUR 500 million (2014: EUR 500 million), JPY 20,000 million (2014: JPY 20,000 million). At 31 March 2015 the fixed interest rates vary from 2.869% to 7.163% and floating rates vary from 0.681% (LIBOR plus 0.0 bps) to 3.354% (LIBOR plus 267.5bps) and index-linked interest rates vary from 1.270% plus RPI to 2.970% plus RPI.



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Fair value of financial assets, liabilities, borrowings and derivatives

Restated

2015 2014

Book value

Fair value

Book value

Fair value

£m £m £m £m

Cash at bank and in hand (including short-term deposits) 1.2 1.2 1.2 1.2

Short-term borrowings (346.1) (358.0) (159.2) (159.7)

Long-term borrowings (6,000.4) (7,436.0) (5,993.7) (6,846.9)

Net debt (6,345.3) (7,792.8) (6,151.7) (7,005.4)

Fixed asset investments 6,000.4 7,436.0 5,993.7 6,846.9

Current asset investments 346.1 358.0 159.2 159.7

1.2 1.2 1.2 1.2

The estimated fair values of quoted loans and other borrowings are based on year end mid-market quoted prices (where available). The fair value of derivative financial instruments is determined by calculating (with reference to observable market curves for foreign exchange rates, interest rates,

inflation rates and credit spreads at 31 March) the net realisable value that would have arisen if these contracts terminated at 31 March. In accordance with FRS 29 “Financial Instruments: Disclosures” the financial instruments above have been classified as level 2 for fair valuation purposes, being valued by reference to valuation techniques using observable inputs other than quoted prices in active markets for identical assets and liabilities.



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Maturity of financial liabilities

The maturity profile of the carrying amount of the company's liabilities at 31 March 2015 was as follows:

Derivative Debt liabilities Total

£m £m £m

Less than one year (346.1) (44.0) (390.1)

Between one and two years (362.2) (35.1) (397.3)

Between two and five years (238.5) (2.0) (240.5)

After five years (5,399.7) (905.1) (6,304.8)

Total (6,346.5) (986.2) (7,332.7)

The maturity profile of the carrying amount of the company's liabilities at 31 March 2014 was as

follows:

Restated Derivative Debt liabilities Total

£m £m £m

Less than one year (159.2) (39.5) (198.7)

Between one and two years (266.1) (16.3) (282.4)

Between two and five years (469.6) (20.6) (490.2)

After five years (5,258.0) (600.7) (5,858.7)

Total (6,152.9) (677.1) (6,830.0)

Borrowing facilities

The company has the following undrawn committed borrowing facilities available in respect of

which all conditions precedent had been met at that date:

2015 2014

£m £m

Expiring within one year 375.0 375.0

Expiring between two and five years 500.0 420.0

Total 875.0 795.0

Anglian Water Services Financing Plc borrowing facilities comprise Class A and Class B debt service reserve facilities totalling £279 million provided by Barclays Bank Plc, HSBC Bank Plc, Sumitomo Mitsui Banking Corporation, Santander UK Plc and Lloyds TSB Bank Plc, an £96 million operating and capital maintenance expenditure reserve facility provided by Barclays Bank Plc, BNP Paribas Plc,

Lloyds Bank Plc, Santander UK Plc and Commonwealth Bank of Australia; a syndicated £500 million authorised loan facility for working capital and capital expenditure requirements provided by

Barclays Bank Plc and syndicated to certain other banks.



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10 Loans, other borrowings and financial instruments (continued)

Financial risk management

Management of financial risk

Financial risks faced by the company include funding, interest rate, contractual and currency risks. The board regularly reviews these risks and has approved written policies covering treasury strategy and the use of financial instruments to manage risks. The last review was in May 2015 and treasury matters are reported to the board each month. A Finance, Treasury and Energy Policy Group (FTEPG), comprising the Managing Director, Finance and Non-Regulated Business, the Group Treasurer, together with several other directors and senior

managers, meets monthly with the specific remit of reviewing treasury matters. The company aims to meet its funding requirements primarily through public bond markets, private placements, bank loans and finance leases. Surplus cash is invested in short-term bank deposits, commercial paper and AAA rated money funds.

The company also enters into derivative transactions (principally currency and interest rate swaps)

to manage the interest rate and currency risks arising from the treasury policy. To ensure continued effectiveness and relevance, the board carries out a formal annual review of the treasury organisation and reporting.

Borrowing covenants With the exception of asset-based funding, all the Anglian Water Services group’s borrowings are raised by the company and guaranteed by the Anglian Water Services Financing Group which comprises Anglian Water Services Holdings Limited, Anglian Water Services Overseas Holdings Limited, Anglian Water Services Limited and Anglian Water Services Financing Plc. The treasury function monitors compliance against all financial obligations and it is the group’s policy to manage the balance sheet so as to ensure operation within covenant restrictions.

a) Market risk i) Foreign currency

The group has currency exposures resulting from debt raised in currencies other than sterling and very small purchases in foreign currencies. The group uses a range of instruments to hedge such

exposures. All hedges are undertaken for commercial reasons with the objective of minimising the impact of exchange rate fluctuations on net assets and profits. The group has no material unhedged monetary assets and liabilities denominated in a currency different from the local currency of the company. ii) Interest rate The company has a “back-to-back” arrangement with Anglian Water Services Limited whereby all

borrowings and derivatives are replicated on identical terms. Any exposure to interest rate or RPI risk is passed onto Anglian Water Services Limited, hence, this arrangement eliminates interest rate and RPI risk and results in a net neutral impact on the profit and loss account.



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10 Loans, other borrowings and financial instruments (continued)

Financial risk management (continued) iii) Sensitivity analysis

In managing interest rate risk on cash and deposits the company aims to reduce the impact of short-term fluctuations on the company’s earnings. Deposits are placed for fixed terms and for the year ended 31 March 2015, the average period on deposit was 24 days (2014: 93 days). Deposits are matched against floating rate debt, and are therefore hedged against interest rate movements. Thereafter, there is an exposure to LIBOR movements for which a 0.25% increase or decrease would result in an increase/decrease in interest receivable of £nil (2014: £nil).

b) Credit risk The company has an intercompany payable which is not past due nor impaired. Placements of cash on deposit expose the company to credit risk against the counterparties concerned. The company has credit protection measures in place within agreements which provide protection in the event of counterparty rating downgrade or default. The company only places cash

deposits with banks of high credit standing (as measured by reputable rating agencies) and also

seeks to diversify exposure such that concentration with individual banks is avoided.

2015 2014

£m £m

Counterparty

Institutions with a minimum of two short-term ratings of P1/A1/F1 or higher or

in the case of money market funds with a minimum of two ratings of

Aaam MR1+/AAAm/AAAmmf or higher 1.2 1.2

The maximum exposure to credit risk at the reporting date is the carrying value of the deposits above along with the debtor balances.

c) Liquidity risk

The company’s objective is to maintain flexibility, diversification and continuity of funding through access to different markets and debt instruments. The table below analyses the company’s financial liabilities and net-settled derivative financial

instruments into relevant maturity groupings based on the remaining period at the balance sheet date. The amounts disclosed in the table are the contractual undiscounted cash flows including interest payable.

Less than

1 year

Between 1 and 5

years

Between 5 and 25

years Over 25

years

£m £m £m £m

At 31 March 2015

Borrowings (477.4) (1,638.9) (7,015.5) (3,754.1)

Derivative financial instruments (66.1) 16.0 (258.1) (973.8)

(543.5) (1,622.9) (7,273.6) (4,727.9)

At 31 March 2014

Borrowings (291.8) (1,721.4) (7,517.7) (4,343.7)

Derivative financial instruments 11.3 11.7 (360.6) (1,188.0)

(280.5) (1,709.7) (7,878.3) (5,531.7)



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11 Called up share capital

The issued share capital is 50,000 (2014: 50,000) ordinary shares of £1 each, of which 49,998 (2014: 49,998) have been issued, a quarter paid–up and two shares are fully paid-up, giving an issued share capital of £12,502 (2014: £12,502).

12 Reconciliation of movement in shareholders' funds

2015 2014

£m £m

Profit for the financial year 0.4 0.5

Net addition to shareholders' funds 0.4 0.5

Total shareholders' funds at 1 April 46.3 45.8

Total shareholders' funds at 31 March 46.7 46.3

13 Reserves

Profit and loss

account Total

£m £m

At 1 April 2014 46.3 46.3

Profit for the financial year 0.4 0.4

At 31 March 2015 46.7 46.7

14 Contingent liabilities

The company, as part of the Anglian Water Services group of companies, guarantees unconditionally and irrevocably all the borrowings of Anglian Water Services Limited, Anglian Water Services Holdings Limited and Anglian Water Services Overseas Holdings Limited, which at 31 March 2015 amounted to £1,645.5 million (2014: £1,654.6 million). These include a £1,602.6 million (2014: £1,602.6 million) loan made by Anglian Water Services Limited to Anglian Water Services Holdings Limited and £42.9 million (2014: £52.0 million) in

finance leases owed by Anglian Water Services Limited to third parties.

The company had no other material contingent liabilities at 31 March 2015 or 31 March 2014.



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15 Related party transactions

The company has taken advantage of the exemption in FRS8 ''Related Party Disclosures'' from disclosing transactions with other members of the group.

During the year to 31 March 2015, Anglian Water Services Financing Plc entered into a fixed to fixed

swap agreement with a notional principal of £31.3m, on normal commercial terms, through the

Commonwealth Bank of Australia, the parent company of Colonial First State Global Asset

Management one of the consortium of investors owning Anglian Water Group Limited. In addition to

this the Commonwealth Bank of Australia participated in the new £500m revolving credit facility with

an allocation of £45 million and renewed its participation in the Class Operation and Maintenance

facility. The fees earned on these facilities totalled £188,750.

During the year to 31 March 2014, Anglian Water Services Financing Plc issued three ten year US

dollar private placements through the Commonwealth Bank of Australia. The US$170 million and

£93 million private placements were issued in conjunction with Barclays, and the US$160 million

private placement with BNP Paribas. The Commonwealth Bank of Australia earned fees which were

agreed on normal commercial terms, of 20 and 32.5 basis points on the whole amount of these

transactions, equating to a total of US$1,146,000.

16 Ultimate parent company

The company’s immediate parent undertaking is Anglian Water Services Limited, a company registered in England and Wales.

Anglian Water Services Limited is the parent company of the smallest group to consolidate the financial statements of the company, copies of which can be obtained from the Company Secretary, Lancaster House, Lancaster Way, Ermine Business Park, Huntingdon, Cambridgeshire, PE29 6YJ. Anglian Water Group Limited is the parent company of the largest group to consolidate the financial statements of the company, copies of which can be obtained from the Company Secretary at the

above address.

The directors consider Anglian Water Group Limited, a company registered in Jersey, to be the ultimate parent undertaking. Anglian Water Group Limited is itself owned and controlled by a consortium of investors consisting of the Canada Pension Plan Investment Board, Colonial First State Global Asset Management, IFM Investors and 3i.

Documents

Anglian Water Services Financing Plc · Anglian Water Services Financing Plc Strategic Report for the Year Ended 31 March 2015 1 The directors present the Strategic Report for the