REG - Northumbrian Water - Financial Statements and Annual Performance Report

CK Hutchison HoldingsAnnouncement

14/07/2023 19:30

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RNS Number : 1263G  Northumbrian Water Limited  14 July 2023

NORTHUMBRIAN WATER LIMITED

 

FINANCIAL STATEMENTS AND ANNUAL PERFORMANCE REPORT 2022/23

Northumbrian Water Limited (NWL) has today published its Annual Performance
Report (APR) and its Annual Report and Financial Statements (AR&FS) for
the year ended 31 March 2023.

Chief Executive Officer, Heidi Mottram, said "I am thrilled to be able to say
we are the industry leader for customer experience, achieving top place for
C-MeX, Ofwat's measure of customer service. This has been the result of a one
team effort across our business to deliver world class service to our
customers."

"We have also continued to deliver good environmental performance with no
serious pollution incidents and further reductions in sewer flooding. However,
we recognise that customers' expectations are increasing, especially in
relation to river and bathing water quality, and we are committed to
delivering the nine ambitious pledges we set out in 'A Vision for our Coasts
and Rivers (https://nwl.pagetiger.com/a-vision-for-our-coasts-and-rivers/1) '
to improve our water environment."

Performance review

Our APR describes our performance in the year against a wide range of
measures. We set out our ambitious goals for the 2020-25 period in our PR19
Business Plan, reflecting the feedback from our customers. This has been the
third year of delivering against those goals and the tough performance
commitments we have made.

Our environmental performance remains strong and in North East England we have
some of the lowest levels of pollution and cleanest rivers and beaches in the
country. However, we know that customers and stakeholders are increasingly
concerned about spills from storm overflows into rivers and the sea, and we
know we need to do more. We have recently updated 'A Vision for our Coasts and
Rivers (https://nwl.pagetiger.com/a-vision-for-our-coasts-and-rivers/1) ' on
our website, to set out the progress we have made against the nine pledges we
have made in respect of our water environment and our programme of work to
2025 that will help us achieve our goals. We are investing substantial amounts
in the current regulatory price period towards reducing our use of storm
overflows and upgrading our wastewater network, and are already planning a
massive environmental programme of around £1.7bn over the next few years to
stop storm overflow spills and improve the environment, adopting nature-based
solutions wherever possible.

As well as providing industry-leading customer service, we know that it's
really important to our customers that we keep our services as affordable as
possible. As a result of the economic upheaval over recent years, we have seen
more customers reaching out to us for financial support and have increased the
number of customers receiving support to over 100,000 this year.

Innovation is one of our core values and we have been working for many years
to create a thriving innovative culture. This year we have seen two of our
initiatives taken forward at a national level. Our Bin the Wipe campaign,
which has been pivotal to our reduction in sewer flooding, has now been
adopted across the industry and launched as a national campaign. The National
Underground Asset Register, an idea which came out of our Innovation Festival
in 2018, was launched by the Geospatial Commission in April 2023. This is an
interactive, digital map of underground pipes and cables which will
revolutionise the way we install, maintain operate and repair our buried
infrastructure.

We've been named on the World's Most Ethical Companies list, compiled by the
Ethisphere Institute, for the twelfth time, the only water company recognised,
remain the only water company to be awarded the Good Business Charter, which
involves demonstrating good practice across a number of areas including
employment practices, environmental responsibility, fair tax and procurement.

Financial performance

The Annual Report and Financial Statements, published on our website today,
reports our financial performance in the year. Operating profit increased from
£188.3m to £211.6m. Revenue increased by £69.8m to £849.9m, which included
the adjustment to our revenue allowance following the redetermination by the
Competition and Markets Authority in March 2021 and 4.6% CPIH inflation on
wholesale revenue. Operating costs also rose by £46.5m to £638.3m, largely
due to the unprecedented increase in power prices experienced during the year
and a consequential increase in chemical prices. We implemented an updated
Energy Hedging Strategy during the year to manage future energy cost
volatility.

Net finance charges have been materially impacted by the high levels of
inflation, increasing by £90.5m to £260.6m due to significantly higher
accretion on index-linked bonds and adverse movements on the market valuation
of inflation-linked derivatives. Both of these items are non-cash in nature
and accretion will reduce as inflation falls over time. However, for the year,
this resulted in a loss before tax of £49.0m and a loss after tax of £27.1m

The high inflation has also been reflected in significant growth in our
Regulatory Capital Value from £4.5bn to £5.1bn. This underpins the financial
strength and long term value of the business.

We invested c.£330m in our assets in the year, including around £213m
invested in maintaining the health of our assets to ensure the continued
provision of sustainable water and wastewater services in the areas we serve.
In addition, as well as supporting growth from developers in our areas, we
continued to deliver our AMP7 enhancement programme which will deliver
environmental improvements through the Water Industry Environmental Programme,
improved resilience of our water and wastewater assets, as well as cyber
resilience, and smart metering.

To meet our medium term funding requirements, we have established a £6bn
European Medium Term Note programme under which we raised bonds of £400m in
October 2022 and £350m in February 2023. We have a committed bank facility of
£450m for the purpose of maintaining general liquidity, which was undrawn at
31 March 2023.

NWL retains investment grade credit ratings of Baa1 (stable outlook) from
Moody's and BBB (stable outlook) from Standard & Poor's.

The Directors have assessed the future prospects of the Company and have
confirmed that the business remains financially resilient over the long term.
However, the Board has concerns that the rate of return being proposed in the
price review process for 2025-2030 is not consistent with the risks faced by
equity investors.

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 have completed three years of our current five year price review period and
have made significant progress towards the ambitious goals we set in Our Plan.
We will continue to drive this forward over the coming years, building on our
strong foundations in areas such as customer service and environmental
performance. Equally we must improve our performance across water quality and
leakage and continue to invest in the resilience of our assets, as well as
preparing for the challenges of the next period.

Our planning for the period 2025-2030 is well advanced, ahead of submission in
October of this year. Our business is inherently long term and we are
developing our plan in the context of our long term strategy to 2050 and the
areas where we will need to make new investment to ensure sustainable water
supplies, protecting the local environment, deliver Net Zero and maintain
resilience.

We make sure our customers are at the heart of every decision we take and have
consulted extensively to ensure we understand what is important to our
customers and stakeholders. We know that will be undertaking a huge increase
in capital investment, including to address storm overflows, which will need
to be funded through a combination of borrowing, shareholder equity and
increases in customer bills. Getting the right balance between investing in
our services, environmental improvements and the affordability of customer
bills is not easy, and it's important to us that the views of our customers
inform those decisions.

We are proud of our achievements to date, but we are never complacent and will
continue to invest in further improvements over the coming years.

 

For more information, our reports can be found on our website via the
following link:

https://www.nwg.co.uk/about-us/nwl/how-we-are-performing/annual-performance-report/
(https://www.nwg.co.uk/about-us/nwl/how-we-are-performing/annual-performance-report/)

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