Statement of comprehensive net expenditure for the year ended 31 March 2023

The notes below form part of these financial statements	Notes	31 March 2023 £	31 March 2022 (restated) £
Income
Income from activities	3.5.2	5,287,598	4,480,585
Expenditure
Staff costs	3.5.4	(2,691,278)	(2,946,372)
Depreciation	3.5.6	(12,576)	(24,364)
Other expenditure	3.5.5	(1,333,036)	(899,824)
		(4,036,890)	(3,870,560)
Operating surplus		1,250,708	610,025
Interest receivable		15,158	243
Net surplus for the year after interest		1,264,856	610,268
Corporation tax payable		(1,208)	(1,447)
Other comprehensive net income
Actuarial gain	3.5.13	2,478,000	2,185,000
Total comprehensive net income		3,741,658	2,793,820

All income and expenditure relates to continuing activities.

Statement of financial position as at 31 March 2023

The notes below form part of these financial statements	Notes	31 March 2023 £	31 March 2022 (restated) £
Non-current assets
Property, plant and equipment	3.5.6	25,841	22,745
Property lease	3.5.7	158,728	-
Long term lease payments receivable	3.5.7	58,509	-
Total non-current assets		243,078	22,745
Current assets
Other receivables	3.5.8	647,964	72,107
Cash and cash equivalents		3,457,039	2,451,590
Total current assets		4,105,003	2,523,697
Current liabilities
Trade payables and other current liabilities	3.5.9	(388,127)	(420,881)
Total current liabilities		(388,127)	(420,881)
Non-current liabilities
Provisions	3.5.10	(114,793)	(73,968)
Long term lease payments payable		(218,910)	-
Total net assets, excluding pension liabilities		3,626,251	2,051,593
Pension scheme liability	3.5.13	(34,000)	(2,202,000)
Net assets		3,592,251	(149,407)
General reserve		3,626,251	2,051,593
Pension reserve		(34,000)	(2,201,000)
Total equity		3,592,251	(149,407)

The financial statements were approved by the Board on 7 December 2023. The Accountable Officer authorised these financial statements for issue on 7 December 2023.

Alan D A Sutherland, Accountable Officer
December 2023

Statement of cashflows for the year to 31 March 2023

The notes below form part of these financial statements	Notes	31 March 2023 £	31 March 2022 (restated) £
Cash flows from operating activities
Operating surplus		1,250,708	610,025
Adjustments for non-cash items
Difference in pension costs compared to contributions	3.5.13	247,000	380,000
Depreciation on tangible non-current assets	3.5.6	12,576	24,364
Finance costs		64,000	85,000
Gain on disposal of fixed assets	3.5.6	-	6,011
Increase in provision	3.5.10	40,825	4,268
Movements in working capital
(increase)/decrease in other receivables	3.5.8	(634,366)	71,960
Increase/(decrease) in trade payables and other liabilities	3.5.9	186,156	(1,242,482)
Net cash inflow/(outflow) from operating activities		1,166,899	(60,854)
Cash flows from investing activities
Purchase of property, plant and equipment	3.5.6	(15,671)	(11,910)
Recognition of lease asset	3.5.7	(158,728)	-
Net cash outflow from investing activities		(174,399)	(11,910)
Cash flows from financing activities
Interest received		14,158	243
Corporation tax payable		(1,208)	(1,447)
Net inflow/(outflow) from financing activities		12,950	(1,204)
Net increase/(decrease) in cash and cash equivalents		1,005,449	(73,969)
Cash as at 1 April		2,451,590	2,525,559
Cash as at 31 March		3,457,039	2,451,590
Net increase/(decrease) in cash and cash equivalents		1,005,449	(73,969)

Statement of changes in equity for the year ended 31 March 2023

The general reserve is analysed in note 11	£
Balance as at 1 April 2021 (restated)	(2,943,227)
Total comprehensive net expenditure for the year 2021-22 (restated)	2,793,820
Balance as at 31 March 2022 (restated)	(149,407)
Total comprehensive net income for the year 2022-23	3,741,658
Balance as at 31 March 2023	3,592,251

The notes below form part of these financial statements.

Notes to financial statements

3.5.1 Accounting policies

The financial statements are prepared in a form determined by Scottish Ministers, in accordance with the Water Industry Act 1999, as amended by the Water Industry (Scotland) Act 2002 and the Water Services etc. (Scotland) Act 2005.

The financial statements are prepared as required by the Accounts Direction issued by Scottish Ministers and prepared in accordance with the FReM issued by HM Treasury.

The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public-sector context. Where the FReM permits a choice of accounting policy, the accounting policy which is judged to be most appropriate to our circumstances for the purpose of giving a true and fair view has been selected. The policies adopted are described below. They have been applied consistently in dealing with items that are considered material in relation to the financial statements.

The preparation of the financial statements in conformity with the FReM requires the use of certain critical accounting estimates. It requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed below in “critical accounting estimates and key judgements”.

The Board and Accountable Officer have considered the budget for 2023-24, including the statutory contribution from Scottish Water and Licensed Provider levies, and consider that we have adequate resources to continue in operational existence for the foreseeable future. The financial statements are therefore prepared on a going concern basis.

Accounting Convention

These financial statements have been prepared under the historical cost convention modified to take account of the revaluation of property, plant and equipment and intangible assets.

Critical accounting estimates and key judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. We make 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 financial year are addressed below.

Pension

The present value of the pension obligations depends on several factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/(income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. We are ultimately responsible for the financial and demographic accounting assumptions adopted, based on actuarial advice. We determine the appropriate discount rate at the end of each year, considering information provided by actuaries. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, we consider the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 3.5.13

Prior year adjustment

During the current year's financial statement preparation, an error was identified in the financial statements relating to the incorrect recognition of income from Zero Waste Scotland for the purchase of office furniture.

The sum received was £6,000 and was classified as “other income”. This amount should have been recognised within accumulated depreciation. Another small amount of £174 was adjusted in relation to a historic error within fixed assets which was adjusted through reserves.

As a result, the financial statements for the prior year have been restated to correct this error. The impact of the restatement on the opening balances of equity and the comparative figures for the prior year are as follows:

Impacted area	2021-22 restated £	2021-22 as previously reported £	Difference £
Income from activities	4,480,585	4,486,585	6,000
Property, plant and equipment	22,919	28,919	6,000

This adjustment has been classified as an overhead cost for the purposes of note 3.5.3 Analysis of net expenditure by segment.

The restatement has been applied retrospectively, with adjustments made to the affected line items in the financial statements. This correction has been made to ensure the accuracy and reliability of the comparative information and to provide users with a corrected financial picture.

Newly adopted IFRS - Leases

IFRS 16, “Leases”, supersedes IAS 17 Leases and is being applied by HM Treasury in the Government Financial Reporting Manual (FreM) from 1 April 2022. IFRS 16 introduces a single lessee accounting model that results in a more faithful representation of a lessee’s assets and liabilities and provides enhanced disclosures to improve transparency of reporting on capital employed.

IFRS16 Leases became effective for periods beginning on or after 1 January 2019, however the FReM deferred adoption until 2021. The cumulative catch-up method has been mandated by the FReM. Consequently, the comparatives for 2021-22 reflect the requirements of IAS17.

Under IFRS 16, lessees and lessors are required to recognise assets and liabilities for leases with a term of more than 12 months, unless the underlying asset is of low value. While no standard definition of ‘low value’ has been mandated, we have elected to utilise the capitalisation threshold of £500 to determine the assets to be disclosed.

All existing operating leases fall within the scope of IFRS 16 under the ‘grandfathering’ rules mandated in the FReM for the initial transition to IFRS 16. New contracts and contract renegotiations will be reviewed for consideration under IFRS 16 as implicitly identified right-of-use assets. Assets recognised under IFRS 16 will be held on the Statement of Financial Position as (i) right of-use assets which represent the Board’s right to use the underlying leased assets; and (ii) lease liabilities which represent the obligation to make lease payments.

The value of lease payments will generally be assumed to be a fair proxy for the economic benefits that will be derived from the related right-of-use asset and used to depreciate the asset over the life of the lease.

Upon transition, the accounting policy choice to apply IFRS 16 retrospectively to each prior period presented in accordance with IAS 8 has been withdrawn under the FReM. The cumulative effects of initially applying IFRS 16 are recognised at the date of initial application as an adjustment to the opening reserves balance.

Adopted IFRS not yet applied

In these financial statements, there are no adopted IFRSs which have not yet been applied.

Furniture and fittings and information technology

Furniture and fittings and information technology are recorded in the financial statements at depreciated replacement cost because their fair market value is not readily available.

Depreciation is calculated monthly and charged on cost less estimated residual value on a straight- line basis over the expected useful lives of up to a maximum of:

• furniture and fittings: 10 years, which is not more than the lease term of the building in which the furniture and fittings are located; and
• information technology: 4 years.

We consider that all the assets in these categories have short useful lives, and the depreciation rates provide a realistic reflection of consumption and reduction in carrying value. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

Financial assets

Classification

We classify financial assets as ‘loans and receivables.’ We do not hold any financial assets that would be classified as ‘available for sale’ or ‘held-to-maturity.’ The classification depends on the purpose for which the financial assets were acquired and is determined at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables comprise other receivables and cash and cash equivalents.

Recognition and measurement

Financial assets are recognised when WICS becomes party to the contractual provisions of the financial instrument. Financial assets are no longer recognised when the rights to receive cash flows from the asset have expired or we have transferred all risks and rewards of ownership.

Loans and receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of loans and receivables is established when there is objective evidence that we will not be able to collect all amounts due according to the original terms of the receivables.
Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the loan and receivable is impaired. The carrying amount of the asset is reduced using a provision account and the amount of the loss is recognised in the comprehensive statement of income and expenditure. When a loan or receivable is uncollectible it is written off against the provision account. Subsequent recoveries of amounts previously written off are credited in the comprehensive statement of income and expenditure.

Financial liabilities

Classification

We classify financial liabilities on initial recognition as other financial liabilities. Other financial liabilities are included in current liabilities, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current liabilities. Our other financial liabilities comprise trade and other payables in the balance sheet.

Recognition and measurement

Financial liabilities are recognised when WICS becomes party to the contractual provisions of the financial instrument. A financial liability is removed from the balance sheet when it is extinguished, that is when the obligation is discharged, cancelled, or expired. Other financial liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held at call with banks.

Provisions

Provisions are recognised when we have a present legal or constructive obligation because of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Where there are several similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax interest rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense.

Income and expenditure

Funding is by way of a statutory contribution paid by Scottish Water, as directed by Scottish Ministers. Licensing activity is funded by a levy charged to Licensed Providers. Income is also received from the beneficiaries of support provided by us in relation to Hydro Nation activities.

From 1 July 2021, we sub-leased our premises in Stirling. Rental income from the property is recorded as other income.

Purchases of goods and services are recorded as expenditure when the goods or services are received rather than when payments are made.

All income and expenditure is recognised in the statement of comprehensive net expenditure in the period to which it relates.

Value added tax

Most of our activities are outside the scope of Value Added Tax (VAT) and, in general, we are not required to declare output tax to HMRC on the income that it receives. Correspondingly, we are not entitled to recover VAT that it incurs on costs (input tax) in relation to these activities that fall outside the scope of VAT. Such irrecoverable VAT is charged to the relevant expenditure category or included in the capitalised purchase cost of fixed assets.

Corporation tax

Similarly, most of our activities are outside the scope of Corporation Tax. However, Corporation tax is payable on bank interest received from cash deposits held. We submit a corporation tax return to HMRC each year to declare this tax obligation. Income received and expenditure incurred relating to the sub-lease of the main office is included in the tax return. However, no taxation was due on this activity in 2022-23.

Employee benefits

Our employees are members of the Local Government Pension Scheme (the Scheme) administered by Falkirk Council. The Scheme is a tax approved, defined benefit occupational pension scheme and the scheme regulations are made under the Public Service Pension Schemes Act 2013 and, in the case of the Scheme (Transitional Provisions and Savings) (Scotland) Regulations 2014, under the Superannuation Act 1972. The Scheme is contracted out of the State Second Pension scheme and meets the government’s standards under the automatic enrolment provisions of the Pensions Act 2008.

The Scheme is accounted for on a defined benefit basis under IAS 19 Employee Benefits (IAS 19). Assets and liabilities of the Scheme are held separately from those of WICS. The Scheme’s assets are measured using market values and the Scheme’s liabilities are measured using a projected unit method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to the liability. Contributions to the Scheme are calculated to spread the cost of pensions over employees’ working lives. The contributions are determined by

an actuary based on triennial valuations using the Age Attained Method. The actuaries review the progress of the Scheme in each of the intervening years. Variations from regular cost are spread over the expected average remaining working lifetime of members of the Scheme after making allowances for future withdrawals.

The expected cost of providing staff pensions to employees contributing to the Scheme is recognised in the statement of comprehensive expenditure on a systematic basis over the expected average remaining lives of members of the funds in accordance with IAS 19 and recognises retirement benefits as the benefits are earned and not when they are due to be paid. The statement of comprehensive expenditure includes the net impact of returns on the Scheme’s assets and interest on the Scheme’s liabilities, which is disclosed (net) as other finance income or interest payable. A pension scheme asset is recognised on the balance sheet only to the extent the surplus may be recovered by reduced further contributions or to the extent that the trustees have agreed a refund from the scheme at the balance sheet date. A pension scheme liability is recognised to the extent that we have a legal or constructive obligation to settle the liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in the statement of comprehensive net expenditure in the period in which they arise.

Past-service costs are recognised immediately in income and expenditure, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

Termination benefits

Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. We recognise termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

Segmental reporting

Operating segments are identified based on internal reports about components of WICS that are regularly reviewed by the chief operating decision makers in order to allocate resources to the segments and assess their performance.

3.5.2 Income

	31 March 2023 £	31 March 2022 (restated) £
Scottish Water statutory contribution	2,279,005	2,256,440
Levy on licensed providers	1,718,013	1,672,724
Hydro nation income	1,185,029	479,455
Rental income	88,533	-
Other income	17,018	71,966
Total income	5,287,598	4,480,585

3.5.3 Analysis of net expenditure by segment

The purpose of activity reporting is to analyse costs by income stream, allowing for a better understanding of how (and against which activities) resources are being deployed. A summary of the full year report is detailed below.

Contribution to overheads by activity	31 March 2023 £	31 March 2022 (restated) £
Network regulation	1,175,339	1,156,148
Retail	1,384,631	1,440,003
Hydro nation	352,874	173,308
Total contribution to overheads	2,219,844	2,769,459
Overheads	(1,662,136)	(2,159,434)
Net surplus for the year before interest and taxation	1,250,708	610,025

3.5.4 Staff related costs

	31 March 2023 £	31 March 2022 restated £
Wages and salaries	2,031,370	1,189,545
Social security costs	224,269	218,446
Pension costs	435,639	829,381
Staff costs per statement of comprehensive net expenditure	2,691,278	2,946,372

The cash contributions made to the pension scheme are disclosed in note 3.5.13.

3.5.5 Other expenditure

	31 March 2023 £	31 March 2022 restated £
Travel and subsistence	372,488	16,572
Office accommodation	(74,488)	101,404
Payment of lease liabilities	88,549	-
General operating costs	313,712	248,587
Regulation and licensing costs	412,874	285,927
Recruitment	34,992	8,172
Information technology	103,307	154,503
Finance charges	81,239	84,659

The operating costs for the year are stated after charging the external audit fee of £18,200 (2021- 22: £13,940). Payment of lease liabilities represents the rent payments made during the year for office space at Moray House in Stirling. For full details of lease disclosures, see note 3.5.7. Other accommodation expenditure relates to service charge payments and provision for office dilapidations. As a result of the adoption of IFRS 16, rental costs are no longer accrued on a straight- line basis. Therefore, the rent accrual was reversed, creating a credit within office accommodation.

Services categorised under regulation and licensing costs are provided by external consultants.

Finance charges principally relate to the net interest cost of the pension scheme for the year (see note 3.5.13).

3.5.6 Property, plant and equipment

Cost	Information technology £	Furniture and fittings £	Total £
At 31 March 2022	116,404	171,084	287,487
Additions	15,671	-	15,671
Disposals	(324)	-	(324)
At 31 March 2023	131,751	171,084	302,835
Depreciation
At 31 March 2022	94,534	170,035	264,596
Charge for the year	11,528	1,048	12,576
Eliminated on disposals	(151)	-	(151)
At 31 March 2023	105,910	171,084	176,994
Net book value at 31 March 2023	25,841	-	25,841
Net book value at 31 March 2022	21,870	1,048	22,919

Cost	Information technology restated £	Furniture and fittings restated £	Total restated £
At 31 March 2021	117,01	274,011	391,072
Additions	11,910	-	11,910
Disposals	(12,568)	(102,927)	(115,495)
At 31 March 2022	116,403	171,084	287,498
Depreciation
At 31 March 2021	84,348	265,514	349,862
Charge for the year	22,753	1,611	24,364
Eliminated on disposals	(12,598)	97,090	(109,658)
At 31 March 2022	94,533	170,035	264,568
Net book value at 31 March 2022	21,870	1,049	22,920
Net book value at 31 March 2021	32,713	8,497	41,210

3.5.7 Leases

Right-of-use asset

We have one lease for an office building. The lease is reflected on the statement of financial position as a right-of-use asset. At 1 April 2022, the asset is valued as the amount due to the landlord, Stirling Council, until the expiry of the lease (13 March 2026). The amounts due are recorded on the statement of financial position as a lease liability.

Payments made to the landlord during the year reduces both the value of the asset and the lease creditor. Payments we make to Stirling Council will decrease the lease creditor to zero over the life of the lease agreement.

Sub-lease of right-of-use asset

Since 1 July, we have sub-let the office to Zero Waste Scotland (ZWS). The lease agreement is for the term to 30 September 2024, with the option to extend to 13 March 2026. This sub-lease reduces the value of the right-of-use asset on the statement of financial position by the value of the amounts due in relation to rent by ZWS to the end of the current lease term (30 September 2024) to reflect the economic benefits from the right-of-use asset that are transferred from us to ZWS.

Payments due by ZWS are recorded on the statement of financial position as a lease debtor. Payments made to us from ZWS will decrease the lease debtor to zero over the life of the sub- lease agreement.

Depreciation of right-of-use asset

Deprecation will not be charged on the right-of-use asset during the period of the sub-lease agreement as the economic benefits have already been written down for that period to reflect the transfer of the asset to ZWS.

For the period beyond the sub-lease agreement, the value of the lease payments to Stirling Council will be used as a fair proxy for the economic benefits that will be derived from the related right-of-use asset and used to depreciate the asset over the life of the lease.

If ZWS take up the option to extend the lease to 13 March 2026 at the end of the current sub- lease agreement, then we will be required to write down the right-of-use asset to zero in its 2023- 24 financial statements and recognise a lease debtor for the value of lease payments due from ZWS over that period.

Right-of-use asset	Property £
Cost at 1 April 2022	-
Recognition of lease asset	408,703
Write down to reflect transfer of asset to ZWS	(249,975)
Cost as at 31 March 2023	158,728
Depreciation at 1 April 2022	-
Depreciation at 1 April 2023	-
Carrying amount at 31 March 2023	158,728
Carrying amount at 1 April 2022	-

Total future lease payments due under the office building are outlined in the table below.

Payments due by WICS, as lessee	Year ended 31 March 2023 £
Not later than one year	101,244
Later than one year and not later than five	218,910
Total	320,154

Total future lease payments receivable from ZWS are outlined in the table below. 

Payments receivable by WICS, from lessor	Year ended 31 March 2023 £
Not later than one year	102,917
Later than one year but not later than five	58,509
Total	161,426

3.5.8 Other receivables

Current liabilities by category	31 March 2023 £	31 March 2022 £
Prepayments	61,774	61,520
Lease payments due < 1 year	102,917	-
Other receivables	483,273	10,587
Total other receivables	647,964	72,107

The increase in other receivables from the previous year is largely as a result of invoices due from the Department of Internal Affairs, New Zealand of £461k which were settled soon after the end of the financial year 2022-23.

Intra-government receivables	31 March 2023 £	31 March 2022 £
Central government	-	7,498
Local authorities	14,713	13,601
Bodies external to government	633,251	51,008
Total other receivables	647,964	72,107

3.5.9 Current liabilities

Current liabilities by category	31 March 2023 £	31 March 2022 £
Trade payables	45,360	85,399
Taxation and social security	58,911	57,848
Accruals	137,810	227,450
Lease payments due < 1 year	101,244	-
Pension	44,802	50,184
Total current liabilities	388,127	420,881

Intra-government payables	31 March 2023 £	31 March 2022 £
Local authorities	164,759	67,964
Central government	79,255	51,024
Bodies external to government	144,113	301,893
Total current liabilities	388,127	420,881

3.5.10 Provisions for liabilities and charges

	31 March 2023 £	31 March 2022 £
Balance as at 1 April 2022	73,968	69,700
Provided in the year	40,825	4,268
Balance at 31 March 2023	114,793	73,968

The provision for dilapidation costs relates to our contractual duty to repair leasehold property on termination of the lease. Provision is made for the estimated costs of fully repairing leasehold properties at the end of the financial year. The estimation of costs was reassessed to account for increasing inflation and other cost increases. However, the valuation of potential dilapidations will be reviewed in 2023-24 to ensure they are of a reasonable valuation.

3.5.11 Note to statement of change in equity

	Note	General reserve £	Pension reserve £	Re-stated total reserve £
Balance at 1 April 2021		977,773	(3,921,000)	(2,943,227)
Changes in reserves 2021-22
Actuarial gains		-	974,000	974,000
Change in assumptions underlying the present value of the scheme liabilities		-	1,211,000	1,211,000
Net surplus/(deficit) for the year		1,073,820	(465,000)	608,820
Balance as at 31 March 2022		2,051,593	(2,201,000)	(149,407)
Changes in reserves 2022-23
Actuarial gains	3.5.13	-	(3,017,000)	(3,017,000)
Change in assumptions underlying the present value of the scheme liabilities	3.5.13	-	5,495,000	5,495,000
Net surplus/(deficit) for the year		1,574,658	(311,000)	1,263,658
Balance as at 31 March 2023		3,626,251	(34,000)	3,592,251

3.5.12 Commitments and contingent liabilities

Capital commitments

There were no capital commitments at 31 March 2023 (2021-22: £nil).

Contingent liabilities

We entered a contract with the DIA in New Zealand to provide services relating to the Three Waters Reform Programme. The contract activity was performed both physically in New Zealand and remotely from the United Kingdom. As a result of our extended presence in New Zealand, it was decided to make a voluntary disclosure to the Inland Revenue Department (IRD) to ensure all taxation obligations arising from the project were met. As a statutory body, we do not undertake projects with an intention to make profit and instead budgets project activity to reach a break- even position.

From the 1 June 2023, we registered as an employer in New Zealand (IRD No. 139-863-402). On the basis that there was no intention to make a profit on the activities in New Zealand, the IRD provided us with a Special Tax Rate Certificate confirming that no corporation tax would be due.

The services we provide to the DIA would likely be liable to Goods and Services Tax at a rate of 15%. As the DIA is able to reclaim GST paid, there would be no financial gain for any parties in charging GST on invoices from us to the DIA. Therefore, we submitted a voluntary disclosure to the IRD on the basis that GST is technically required to be charged, but that there would be no benefit to filing returns. This approach has been accepted by the IRD and all income from the DIA included in these financial statements exclude GST.

There are no other contingent liabilities to disclose in the year.

3.5.13 Pension

Background

Most of our employees, and some former employees, are members of the Local Government Superannuation Scheme administered by Falkirk Council. This scheme is a defined benefit scheme.

In the period we paid contributions totalling £440k (2021-22: £466k) into the Fund. Under the Superannuation Regulations, contributions are set to meet 100% of the overall liabilities of the Fund. We have been advised that specific (minimum) rates for employer contributions in 2023-24 will be 29.4% (2021-22: 29.4%).

In accordance with IAS 19 we commissioned the Fund’s actuaries to undertake a valuation as at 31 March 2021. This calculation was based on rolling forward valuation data at 31 March 2020 (the last formal valuation) to 31 March 2023 based on several financial assumptions.

The main financial assumptions used included:

Financial assumptions	Year ended 31 March 2023 % p.a.	Year ended 31 March 2022 % p.a.
Pension increase rate (CPI)	2.95	3.15
Salary increase rate	3.55	3.75
Discount rate	4.75	2.75

The average future life expectancies at age 65 are summarised below.

Financial assumptions	Males	Females
Current pensioners (years)	20.0	22.7
Future pensioners (years)	21.2	24.7

Change in the fair value of plan assets, defined benefit obligation and net liability for the year ended 31 March 2023

	Assets £(000)	Obligations £(000)	Net (liability) / asset £(000)
Fair value of employer	11,271		11,271
Present value of funded liabilities	-	13,432	(13,432)
Present value of unfunded liabilities	-	40	(40)
Opening position as at 31 March 2022	11,271	13,472	(2,201)
Current service cost	-	687	(687)
Total service cost	-	687	(687)
Net interest
Interest income on plan assets	315	-	315
Interest cost on defined benefit obligation	-	379	(379)
Total net interest	315	379	(64)
Total defined benefit cost recognised in profit	315	1,066	(751)
Cashflows
Participants' contributions	125	125	-
Employer contributions	437	-	437
Estimated benefits paid	(148)	(148)	-
Estimated unfunded benefits paid	(3)	(3)	-
Estimated contributions in respect of unfunded benefits paid	3	-	3
Expected closing position	12,000	14,512	(2,512)
Re-measurements
Asset ceiling adjustment	(2,802)	-	(2,802)
Change in financial assumptions	-	(6,250)	6,250
Change in demographic assumptions	-	(89)	89
Other experience	-	844	(844)
Return on assets excluding amounts included in net interest	(215)	-	(215)
Total re-measurements recognised in other comprehensive income (OCI)	(3,017)	(5,495)	2,478
Fair value of employer assets	9,017	-	9,017
Present value of funded liabilities	-	9,017	(9,017)
Present value of unfunded liabilities	-	34	(34)
Closing position as at 31 March 2023	9,017	9,051	(34)

Pension assets and liabilities recognised in the statement of financial position

The amount included in the statement of financial position arising from our obligation in respect of the pension scheme is normally the net liability represented by the present value of the defined benefit obligation and the fair value of the plan assets. However, for 2023, the actuarial gains arising from changes in the financial assumptions have resulted in a net asset position.

IAS 19 requires that the net defined benefit asset recognised in the statement of financial position is measured at the lower of the net asset position in the defined benefit fund and the asset ceiling. The asset ceiling is defined as “the present value of any economic benefits available in the form of refunds from the plan, or reductions in future contributions to the plan”. As a result, the net pension asset to be recognised in the statement of financial position has been revised to reflect the asset ceiling adjustment advised by our actuaries, Hyman Robertson.

	2022-23 £(000)	2021-22 £(000)
Present value of the defined benefit obligation	(9,017)	(13,472)
Fair value of plan assets	11,785	11,271
Asset ceiling adjustment	(2,802)	-
Net liability arising from defined benefit obligation	(34)	(2,201)

The liability of £34,000 represents the present value of unfunded liabilities as at 31 March 2023.

Asset ceiling adjustment

In accordance with IAS 19 and the guidance issued under the International Financial Reporting Interpretations Commission – Interpretation 14 (IFRIC 14), the asset ceiling has been determined as follows:

	2022-23 £(000)	2021-22 £(000)
Net present value of estimated future service costs	2,391	N/A
Net present value of future contributions	(4,283)	N/A
	(1,892)	N/A

As the present value of future contributions are greater than the present value of future service costs, the net asset is restricted zero at 31 March 2023. However, the present value of unfunded pension liabilities are required to be disclosed at the end of the financial year, totalling £34k, as disclosed above.

Change in the fair value of plan assets, defined benefit obligation and net liability for the year ended 31 March 2022

	Assets £(000)	Obligations £(000)	Net (liability)/asset £(000)
Fair value of employer assets	9,660	-	9,660
Present value of funded assets	-	13,539	(13,539)
Present value of unfunded liabilities	-	42	(42)
Opening position as at 31 March 2021	9,660	13,581	(3,921)
Current service cost	-	846	(846)
Total service cost	-	846	(846)
Net interest
Interest income on plan assets	202	-	202
Interest cost on defined benefit obligation	-	287	(287)
Total net interest	202	287	(85)
Total defined benefit cost recognised in deficit	202	1,133	(931)
Cashflows
Participants' contributions	132	132	-
Employer contributions	463	-	463
Estimated benefits paid	(160)	(160)	-
Estimated unfunded benefits paid	(3)	(3)	-
Estimated contributions in respect of unfunded benefits paid	3	-	3
Expected closing position	10,297	14,683	(4,386)
Re-measurements
Change in financial assumptions	-	(1,179)	1,179
Change in demographic assumptions	-	(70)	(70)
Other experience	-	38	(38)
Return on assets excluding amounts included in net interest	974	-	974
Total re-measurements recognised in Other Comprehensive Income (OCI)	974	(1,211)	2,185
Fair value of employer assets	11,271	-	11,271
Present value of funded liabilities	-	13,432	(13,432)
Present value of unfunded liabilities	-	40	(40)
Closing position as at 31 March 2022	11,271	13,472	(2,201)

Fair value of plan assets for the period ended 31 March 2023

The below asset values are at bid value as required under IAS 19

Asset category	Quote prices in active markets £(000)	Quoted prices not in active markets £(000)	Total £(000)	Percentage of total assets
Equity securities
Consumer	719.6	-	719.6	6%
Manufacturing	631.2	-	631.2	5%
Energy and utilities	410.5	-	410.5	3%
Financial institutions	857.1	-	857.1	7%
Health and care	385.7	-	385.7	3%
Information technology	955.0	-	955.0	8%
Other	115.2	-	115.2	1%
Debt securities
UK Government	4824	-	482.4	4%
Other	219.9	-	219.9	2%
Private equity
All	-	142.0	142.0	1%
Real estate
UK property	-	730.0	730.0	6%
Overseas property	-	1.0	1.0	0%
Investment funds and unit trusts
Equities	3,042.6	-	3,042.6	26%
Bonds	626.3	-	626.3	5%
Infrastructure	-	1,281.4	1,281.4	11%
Other	456.6	242.8	699.4	6%
Cash and cash equivalents
All	485.7	-	485.7	4%
Totals	9,388	2,397	11,785	100%

The asset value, at bid value, for the period ended 31 March 2022 are outlined in the table below,

Asset category	Quote prices in active markets £(000)	Quoted prices not in active markets £(000)	Total £(000)	Percentage of total assets
Equity securities
Consumer	841.6	-	841.6	7%
Manufacturing	605.8	-	605.8	5%
Energy and utilities	399.1	-	399.1	4%
Financial institutions	936.4	-	936.4	8%
Health and care	309.7	-	309.7	3%
Information technology	1,033.7	-	1,033.7	9%
Other	59.5	-	59.5	1%
Debt securities
UK Government	158.4	-	158.4	1%
Private equity
All	-	164.3	164.3	1%
Real estate
UK property	-	623.9	623.9	6%
Overseas property	-	1.0	1.0	0%
Investment funds and unit trusts
Equities	2,777.9	-	2,777.9	25%
Bonds	706.9	-	706.9	6%
Infrastructure	-	1,100.2	1,100.2	10%
Other	1,038.0	253.3	1,291.3	11%
Cash and cash equivalents
All	261.3	-	261.3	2%
Totals	9,128	2,143	11,271	100%

Projected defined benefit cost for the period to 31 March 2024

The table below provides an analysis of the projected amount to be charged to operating profit for the period to 31 March 2024.

	Assets	Obligations	Net (liability)/asset	% of pay
Projected current service cost	-	244	(244)	(16.4%)
Total service cost	-	244	(244)	(16.4%)
Interest income on plan assets	569	-	569	38.3%
Interest cost on defined benefit obligation	-	433	(433)	(29.1%)
Total net interest cost	569	433	136	9.2%
Total included in income statement	569	677	(108)	(7.2%)

Employer’s contributions for the period to 31 March 204 will be approximately £437,000.

Sensitivity analysis

The sensitivities regarding the principal assumptions used to measure the scheme liabilities are set out below.

Change in assumptions at 31 March 2023	Approximate % increase to employer	Approximate monetary amount £(000)
0.1% decrease in Real Discount Rate	2%	210
0.1% increase in Salary Increase Rate	0%	14
0.1% increase in Pension Increase Rate (CPI)	2%	199
1 year increase in member life expectancy	4%	361

Related party transactions

As we are a non-departmental public body sponsored by the Scottish Government, the Scottish Government is regarded as a related party. There have been no transactions between us and the Scottish Government.

We have had transactions with other central and local government bodies: Scottish Water, Falkirk Council, Stirling Council and Audit Scotland.

A levy is received from each licensed provider to fund any licensing activity we carry out. Business Stream is a licensed provider and provided us with water and wastewater services up to 30 June 2021. Therefore Business Stream is considered a related party.

All Board Members and Directors complete and update a register of interests on an annual basis. During the year 202-23, no Board Member, Director or other related party has undertaken any material transactions with us.