REG - Northumbrian Water - Financial Statements and Annual Performance Report

CK Hutchison HoldingsAnnouncement

15/07/2020 19:15

RNS Number : 1389T
  
Northumbrian Water Limited
  
15 July 2020
  
 

NORTHUMBRIAN WATER LIMITED
 
FINANCIAL STATEMENTS AND ANNUAL PERFORMANCE REPORT 2019/20
 
Northumbrian Water Limited (NWL) has today published its Annual Performance Report (APR) and its Annual Report and Financial Statements for the year ended 31 March 2020.
Chief Executive Officer, Heidi Mottram, said "Our vision is to be the national leader in the provision of sustainable water and wastewater services, and I am delighted that we have made further progress towards this vision during 2019/20, and remain one of the leaders in our industry.  This has been an important year as we move into a new five year cycle and our focus remains, as always, on our customers and continuing to deliver an unrivalled service for them.  Our goals are ambitious and so we are putting our efforts firmly on delivering against the outcomes which our customers told us were so important to them".
 
Covid-19 Response
During this time the vital importance of delivering clean water and safely taking away wastewater has perhaps never been so clear.  We are proud of how our teams and partners have come together to continue to provide our customers with this essential public service in the face of the pandemic.
Keeping our employees safe was our first priority, and we were able to quickly enable our customer and support teams to work from home, in line with government guidance, as well as taking measures to ensure that our operational and field workers could continue to carry out their essential work safely.
We understand how difficult this time has been for many of our customers and we have built on our existing 'Water without the Worry' campaign to support customers.  We were able to offer payment breaks to over 6,000 customers and apply our social tariffs to 2,000 customers with affordability issues.  We also signed up 4,000 extra customers to our Priority Services Register to reflect their circumstances.
Our purpose is not only to deliver this essential service for customers, but also to make a wider contribution to support our communities and enhance the environment we all depend on.  The impact of the pandemic has brought this responsibility into even sharper focus.  Recognising this we were one of the first businesses to sign the 'C-19 Business Pledge'.  This pledge commits us to supporting our customers, employees and communities as our part in helping the country pull through the Covid-19 crisis.
The Covid-19 situation is not over yet and we will continue to respond to government guidance as it develops and ensure that we keep delivering our key services safely, and look after our employees, customers and communities.
 
Performance review
Our APR, which is published on our websites today, describes our performance in the year against a wide range of measures.  We are pleased to report continued strong operational and financial performance for 2019/20.
We have been through a major transformation programme in our customer teams over the past few years. This year we followed the implementation of our new customer contact and billing system with our new operational contact and planning system and, at the same time, we've launched our new digital platforms.  These systems give us a much improved platform to engage with our customers in the way they choose, but our most important asset in providing unrivalled customer experience is our people.  With our 'Just Add You' approach, we're taking best practice approaches and tailoring them to deliver what our customers have told us are their top priorities.  This sets us up well to deliver against our targets to be leading in C-MeX, the new more holistic measure of customer experience.
We made steady improvements across almost all of our targets in our water business, meeting our leakage targets again in both of our operating regions and continuing long term improvements in reducing contacts related to the appearance and smell of our water.  We have continued to lead the way on water efficiency adding our 'Leaky Loos' campaign to our existing 'Every Drop Counts' message.
While we continued our strong environmental performance, we have continued to focus on sewer flooding, which is one of the worst service failures our customers can experience.  Our Bin the Wipe campaign is aimed at changing customer behaviour to avoid blockages and has delivered some very impressive early results where we have targeted three hot spot areas with different innovative approaches.  We will look to build on this over the coming year.
Our business is embedded in the environment and delivering a zero carbon water sector is something we, as an industry, care about passionately.  We met our previous target to reduce greenhouse gas emissions by 2020 by a considerable margin, through our investment in generating energy from sewage sludge and commitment to sourcing renewable energy.  We have now set ourselves a really challenging target of being net zero carbon by 2027, and are making real progress towards this.
Innovation remains key to improving our long term performance.  We hosted our third Innovation Festival in 2019, and also held a joint Innovate East event with Anglian Water.  We are now seeing ideas from our earlier events coming through into practical use within our business, such as our Digital Twin to help us better understand our customers' experience of our services.  We have also gone global this year, launching our Amplify platform and opening up real life challenges for people around the world to work on solutions.
The common theme running through all of these achievements is that they are the result of the hard work that our people put in every single day.  Through our 'Great Place To Work' strategy we aspire for all of our people to have a great experience at work, to understand the part they play to achieve our vision and to deliver an unrivalled customer experience.
 
Financial performance
The Annual Report and Financial Statements, published on our websites today, report our financial performance in the year.  Operating profit for 2019/20 of £358.8m represents an increase of £20m compared to the previous year, due to a £31.3m increase in revenue, partially offset by £11.3m higher operating costs.
Revenue reflects an increase in wholesale charges, set in line with the revenue allowance from the FD of price controls for 2015-20, which increased by a 'K factor' of 0.1% plus RPI inflation of 3.2%, and an increase in non-regulated revenue related to the recovery of costs under the Kielder Water Resources Operating Agreement.
Operating costs included a provision of £6.5m to reflect additional bad debt risk on household revenue as a result of the economic impact of the Covid-19 pandemic on our customers.  Other cost increases in salaries and depreciation were partially offset by cost efficiencies.
Net finance charges reduced by £18.5m in the year, which reflected lower accretion on index-linked bonds and smaller adverse movements on the market valuation of derivatives compared to the previous year.  The net tax charge of was £97.8m included a significant £51.9m restatement of deferred tax reflecting the decision by government to reverse the planned corporation tax rate reduction from 19% to 17% which had been previously enacted.  
A final dividend of £65m for the year ended 31 March 2019 was paid in April 2019 and that comprised the total of dividends paid in the year ended 31 March 2020.  No dividends have been proposed, approved or paid in respect of the year ended 31 March 2020.
Capital investment was £280.4m in the year, including around £187m invested in maintaining the health of our asset base to ensure the continued provision of sustainable water and wastewater services in the areas we serve.  We have continued to enhance our asset base, in particular to reduce the risk of sewer flooding, improve water and wastewater treatment compliance and to support new development activity in our areas of operation.
In July 2019, the Company placed its first CPI-linked issuance, as a UK private placement through its financing subsidiary Northumbrian Water Finance plc. This was issued at a principal of £100m on a forward settlement basis for a tenor of 20 years, with a coupon of CPI plus 0.242%.  This increased the proportion of index-linked debt to 38%.  Our committed bank facility of £450m is for the purpose of maintaining general liquidity and was undrawn at 31 March 2020.  The maturity date of the facility was extended to December 2024 during the year.
Cash interest cover and gearing are measured per the financial covenant for the committed facility and remain well within target.  The Company retains strong investment grade credit ratings of BBB+ (negative outlook) from Standard & Poor's (S&P) and Baa1 (negative outlook) from Moody's.
 
Assurance and Governance
We have robust governance and assurance arrangements in place to ensure that the data we publish is accurate, clear and transparent in order to give Ofwat and our customers a high level of trust and confidence in our reporting.  We have produced a separate Data Assurance Summary, published on our websites today, which sets out the assurance that we have carried out on our APR, Financial Statements and other areas of risk over the past year, and the outcomes of these assurance activities.
 
Outlook
We were very proud of Our Plan for 2020-25 which we submitted as part of Ofwat's price review process.  This reflected the engagement we had with over 400,000 customers in developing it and contained our ambitious goals, service and resilience improvement commitments and significant bill reductions.  We received our Final Determination (FD) from Ofwat in December 2019, setting out our revenue allowances, performance commitments and returns for the period 2020-25.  Our Board decided unanimously that the FD did not adequately reflect what our customers said were their priorities and asked Ofwat to refer its FD to the Competition and Markets Authority.  This redetermination process is ongoing.
Our focus remains on delivering the ambitious goals set out in Our Plan to deliver an unrivalled customer service.  We are building on strong foundations in many areas, such as leakage and our environmental performance, but equally know we must improve performance across other areas such as water quality and sewer flooding in order to meet our stretching performance commitments and industry-leading ambitions.
We are proud of the improvements we have made over the past five years, but we are never complacent and are focused on delivering the ambitious goals we've set for the next five years and beyond. 


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