Northumbrian Water Limited has today published its Regulatory Accounts and Annual Performance Review for the year ended 31 March 2013.
REGULATORY ACCOUNTS AND ANNUAL PERFORMANCE REVIEW 2012-13
Chief Executive Officer, Heidi Mottram, said “Overall, our performance has been very pleasing, although we continuously strive to do better. I am delighted that we have further improved the service we provide to our customers in a number of areas. Most notably, our customer experience score and supply interruption performance have both improved significantly. We also continue to have industry-leading sewage treatment performance, a position we have held for a number of years.”
Our Annual Performance Report, which is published on our websites today, describes our performance in the year against a wide range of measures. We are pleased to report strong performance for 2012-13 with improvements to service in a number of areas. There was improved customer service, as measured by Ofwat’s Service Incentive Mechanism, a further reduction in water supply interruptions and 100% compliance with the standards for sewage treatment works discharges. The health (serviceability) of our assets was satisfactory and we more than met our leakage targets in both Essex & Suffolk and Northumbrian Water.
This was a challenging year of dramatic weather extremes, starting with drought conditions in early 2012. Our water resources were resilient, both in the dry Essex and Suffolk region and the wetter north east, and we did not need to apply restrictions on the use of water. The drought was followed by a number of severe summer storms and exceptional rainfall levels, which had an impact on many aspects of our operations. Sewer flooding, drinking water quality and pollution incident performance were affected to greater or lesser extents.
We are working closely with the other flooding agencies to find solutions to sewer flooding. Our innovative Tyneside Sustainable Sewerage project is progressing well, bringing together all of the relevant agencies to identify and address common problems in an integrated and sustainable way, drawing from various forms of funding.
We have continued to expand our catchment management programme and are trialling biobeds to help farmers apply pesticides in a way that does not pollute water resources or harm wildlife.
In the year we delivered our second advanced anaerobic digestion (AAD) plant at Howdon, making us the first UK waste water company to use 100% of the sludge remaining after sewage treatment to produce renewable energy. Together with other energy saving measures, such as using reed beds to treat sludge from water treatment naturally and sustainably, and hydro schemes producing renewable energy, we are on track to deliver our carbon reduction target of 35% in operational emissions by 2020, from a 2008 base position.
Health and safety is critical to us and 2012-13 has seen us deliver an industry-leading performance in line with our target to deliver year-on-year improvements. In the year we received a Gold Award from the Royal Society for the Prevention of Accidents in recognition of our well developed occupational health and safety management systems and culture and risk control framework.
Turnover increased to £756.9m (2012: £729.1m), reflecting the application of Ofwat’s 2009 price review of 0.9% plus 5.2% RPI on water and sewerage charges. However, volumes of measured supplies to both household and non-household customers declined, primarily as a result of the difficult prevailing economic conditions in the UK.
Operating costs increased to £427.6m (2012: £410.2m), reflecting increases in business rates, depreciation, infrastructure renewals and general inflationary pressures, partially offset by the benefits of our efficiency programme.
Net interest payable increased to £116.6m (2012: £106.2m), reflecting higher net finance costs relating to our defined benefit pension scheme and higher interest payable, due to the full period impact of a £360m bond issued in January 2012, partially mitigated by lower indexation on index linked bonds and the benefit arising from the transfer of a finance lease to a new counterparty on improved terms.
Capital investment in the regulated business for the year was £232.9m, under regulatory accounting guidelines (2012: £293.5m). Investment in the Abberton Reservoir enhancement project, which will secure future water supplies to more than 1.5 million people in Essex for the next 25 years, continued in the year and remains on target for completion in 2013. The Howdon AAD project was completed in the year and, in addition to maintaining our asset base at stable serviceability, we continued our significant investment programmes to address sewer flooding and acceptability of water in the north east of England.
In November 2012, the Company drew the second £50.0m tranche of a £150.0m facility from the European Investment Bank at a fixed rate of 3.23%. The remaining £50.0m was drawn after the balance sheet date, in April 2013, at a fixed rate of 2.896%. We had undrawn bank committed facilities of £450.0m at 31 March 2013.
We are committed to maintaining excellent corporate governance and our Regulatory Accounts include, for the first time, a report from our Senior Independent Non-executive Director, Paul Rew, expressing his confidence in the structure and effectiveness of our Board and its supporting Committees. We believe we have achieved a sound balance, which is serving our stakeholders well.
Regulatory and legislative developments
Our business plan, to be published in December as part of Ofwat’s price review process, will describe our strategy for 2015-20, a step on the way to our 25-year aspirations. We have conducted comprehensive customer research and have formed stakeholder engagement groups, known as Water Forums, in our operating areas which have helped to inform and strengthen our plans. We are a long term business and we need to plan carefully so that we can continue to provide the services our customers want at a price they can pay. Our plan will identify the outcomes to be delivered based on customers’ priorities, the challenges we face and opportunities to improve service and efficiency.
On 27 June 2013 the UK Government introduced a Water Bill to Parliament which had already undergone a process of pre-legislative scrutiny. The key elements of the Bill are proposals to introduce retail competition for business customers and outline plans for introducing upstream competition. Along with other water companies, we are working with Government and regulators to prepare for business retail competition with a target implementation date of 2017, with upstream competition to follow at some point beyond 2019.
This has been a successful year across many aspects of our business. The focus on our vision, values and business plan will continue in the coming year and we are confident of further success.
With funding and facilities in place to meet our operational and capital investment requirements for at least the next two years, we are well positioned to maintain a strong financial performance.