We are proud to provide a sustainable, affordable, clean and safe water supply and to manage and treat the waste water returned to us in a way that protects the environment.
Optimising cash flow
The key elements of optimising cash flow for the business are maximising cash collection from customers, effective management of operating and capital expenditure, securing low cost funds, minimising taxation and taking advantage of appropriate commercial business opportunities.
Customer tariffs are set on an annual basis and must be approved by Ofwat and kept within the price limits set in the five-yearly regulatory review. Despite having some of the lowest charges in England and Wales, affordability is becoming an increasing concern for some customers and we continue to be mindful of their circumstances, ensuring our recovery techniques are appropriate and effective. However, customers who deliberately avoid paying charges are actively pursued.
Our approach to delivering operational efficiency and securing low cost funds is outlined below. Our capital investment requirements are driven by legal and regulatory obligations and we aim to deliver these obligations within the funding allowed by Ofwat.
The company seeks to minimise its tax burden by efficiently managing tax matters and mitigating liabilities, in line with the Board’s attitude to risk and acting ethically, lawfully and transparently with the tax authorities. Commercial business opportunities are covered in more detail under the 'commercial services' section of this CR model.
Delivering operational efficiency
Business planning is central to delivery of the company’s long term objectives, identifying how the objectives will be achieved and establishing the targets and principal actions against which business units are measured. The management team set operational efficiency targets over a five-year time horizon and business unit managers identify how sustainable efficiency savings can be delivered within their business plans. On a monthly basis, management compares the actual and forecast performance with plan and budget and this is reported to the Board.
The most significant projects currently underway in the business relate to mobile workforce management and the sludge strategy. These initiatives are described in more detail elsewhere within the CR model but each is expected to deliver both operational efficiencies and environmental benefits.
Securing low cost funds
The company cannot finance it’s capital investment obligations from internally generated funds alone and, therefore, must raise additional finance on a regular basis. The strategy of the company is to finance investment by raising medium to long term debt, providing a balance sheet match with long term assets, and to fix a minimum of 60% of borrowings at fixed rates of interest.
The company assesses future capital requirements up to 5 years ahead and raises funding on a timely basis, taking advantage of any favourable market opportunities. In order to secure funding at attractive rates it is important for the key financial ratios (see KPIs) to meet or exceed targeted levels and to maintain acceptable credit ratings.
As at 31 March 2010 the company has sufficient funds in place to meet its investment requirements to the end of the 2011. However, further funding will be required in the regulatory period and the Board continues to monitor the financial ratios and market conditions. Any surplus funds are invested based upon forecast requirements.