48 Annual Report and Accounts 2021 – Pennon Group plc A purpose-led business

We have a good track record of providing innovative solutions to address affordability in our communities, and we want to do more. Pennon Group plc – Annual Report and Accounts 2021 49 Strategic Report

In response to the pandemic, we were one Governance of the first companies to expand our priority services register. We continue to expand our accessibility and affordability support measures having unlocked c.£2.4 million of financial support by ensuring customers are receiving all eligible benefits. Financial Statements Over 30,000 customers now receive support through reduced tariffs, with more than 67,000 customers supported through one or more of our affordability schemes. We are committed to making bills more affordable starting with those households who pay more than 5% of their disposable Other Information income on their water bills.

The Knapp Mill water treatment works in Bournemouth 50 Annual Report and Accounts 2021 – Pennon Group plc Our operations – South West Water Delivering service excellence for customers

This is the first year of our K7 period (2020-2025) and South West Water has made a strong start in delivering its ambitious New Deal business plan, remaining resilient despite the global pandemic.

Water and wastewater snapshot

10 10

6 12 12 9 11 11 13 6 8 9 5 3 2 4 8 4 7 7 5 3 1 1 2

12

Major towns/cities Our operations

1 7 Plymouth 1 Reservoir 8 Countess West STW

2 Falmouth 8 Torquay 2 Restormel WTW 9 Pynes WTW

3 9 Exeter 3 Colliford Lake Reservoir 10 Wimbleball Lake Reservoir

4 10 Barnstaple 4 Mayflower WTW 11 Alderny WTW

5 11 Bournemouth 5 Mary Tavy Hydroelectric 12 Longham Lake Reservoirs Station 6 12 Isles of Scilly 6 Roadford Lake Reservoir 13 Knapp Mill WTW

7 Brokenbury Torbay STW WTW = Water Treatment Works STW = Sewage Treatment Works

SOUTH WEST WATER IN NUMBERS 2.3m 18,433 653 150 TOTAL POPULATION SERVED KM OF DRINKING WATER WASTEWATER TREATMENT BATHING WATERS MAINS NETWORK WORKS 23 43 19,049 RAW WATER RESERVOIRS DRINKING WATER TREATMENT KM WASTEWATER MAINS WORKS NETWORK Pennon Group plc – Annual Report and Accounts 2021 51

Delivering more of what matters for our Strategic Report communities Sharing our success Our innovative New Deal business plan, informed by our most extensive engagement programme to date. It sets out our focus to change the nature of our relationship with our customers. WaterShare+, a key aspect of our plan, was launched in October 2020, shared c.£20 million of outperformance from 2015-20 with customers, by offering a choice of a £20 credit to their bill or shares in Pennon. We were delighted Governance with the positive response to this trailblazing initiative, which saw 1 in 16 household customers opting to become Pennon shareholders and giving them a tangible stake in the business. WaterShare+ also seeks to give customers a greater say in what South West Water does and how the Company is run. The Independent WaterShare+ Advisory Panel meets in public on a quarterly basis (although held virtually where appropriate), with the panel reviewing South West Water’s progress against Financial Statements targets and an opportunity for customers to have a real say in how the business operates. This year South West Water will hold its first dedicated customer AGM in autumn 2021, designed to be more Innovative affordability and WaterCare programme Minimising customer supply interruptions accessible for all customers who can hear and input Our New Deal included a pledge to eliminate We understand the importance that our customers into the Company’s plans. water poverty by 2025 by expanding our toolkit of place on having a reliable supply of drinking water, Supporting our communities affordability support to those who need it most. During and the inconvenience that supply interruptions can We recognise the importance of our role in the the year, our WaterCare advisors completed over cause. During 2020/21, we achieved our best ever communities we serve, and we are committed to 3,600 virtual home visits and unlocked c.£2.4 million of performance level of 5 minutes 38 seconds, a c.40% Other Information delivering more of what matters to them. During the financial support by ensuring customers are receiving year on year reduction for those customers who have year, we launched dedicated initiatives including all eligible benefits. We continue to expand our an outage for more than three hours, two years ahead our Neighbourhood Fund and the Water-Saving affordability toolkit with over 67,000 customers now of target. We have also delivered a c.80% reduction in Community Fund. benefitting from one or more of our support measures, supply interruptions lasting over 12 hours, achieving The Neighbourhood Fund builds on our work to support representing an 11% increase compared to 2019/20. our 2025 target. our communities with funding available for community Operational delivery – driving A key component of our strategy includes a dedicated, groups, offering physical activities, education, health performance through innovation in-house supply continuity and alternative water and wellbeing and delivering positive environmental South West Water has made a robust start to K7, supply team. Alongside this we have introduced outcomes. Community groups supported to date driving performance and efficiency through innovation. innovative technology enabling repairs to the network include; The Hugs Foundation – offering therapeutic under pressure. We have also introduced enhanced and supportive interventions for those suffering from Clean, safe and reliable drinking water training and greater use of data analysis to support Our focus remains on ensuring the supply of clean, mental ill health, social exclusion, disadvantages and our focus on continuous improvement. disabilities, and the Accessible Activities safe and reliable drinking water, whilst protecting the Delivering a resilient service Programme – supporting families and children with precious natural resources within our region. During the year, demand has been higher than the additional needs to access activities during the Improving water quality for customers previous year, as a result of the sustained stay at school holidays. We continue to target improvements in the quality home measures during lockdown, along with a peak of water supplied to customers and have seen a Our Water-Saving Community Fund promotes ideas to in demand driven by the hot, dry period in the spring c.20% reduction in taste, smell and colour contacts help our customers and communities to get involved and an increase in ‘staycations’ during the summer. over 2020/21. in water conservation projects including support for Throughout the year, we successfully managed our organisations to create drought tolerant gardens, to During the year, we have introduced a range of water resources, balancing supply across the network to install water butts in community allotments or provide innovative raw water management techniques maintain safe and resilient supplies at all times, and our educational training and displays in schools. including reservoir mixing at Wistlandpound Reservoir, reservoir levels at 31 March 2021 remain robust at 97.0%, In partnership with the South West Lakes Trust, an and the introduction of sonic technology which broadly in line with the prior year. reduces algae in raw water sources feeding our innovative, interactive new education centre is being 2020 was the 24th consecutive year without water treatment sites. set up at Roadford Lake informing and promoting restrictions in the South West Water region and water efficiency and the benefits of our work on We continue to target further improvements through maintained Bournemouth Water’s track record of no communities and the environment. It is hoped this our planned c.£90 million investment in new treatment water restrictions ever. centre can help educate our customers to reduce works in the Bournemouth Water region (excluding Our customers feel very strongly that we should water consumption and reduce the risk of sewer Ofwat’s draft decision on Green Recovery) with initial prevent water from being lost due to leakage, and we blockages and pollutions through sewer misuse. works commencing during the year. continue to invest significantly to prevent and manage leaks on our network. Our water network was tested throughout the year with increased demand due to customer behaviour during the multiple lockdown periods and a higher than normal regional population given the significant proportion of second home ownership in our region. 52 Annual Report and Accounts 2021 – Pennon Group plc

Our operations – South West Water continued

As a result, increased pumping has been required to more rural areas, away from concentrated urban environments. With a record number of bursts seen in early 2021, our teams provided a robust response to this increased network activity. This resulted in a c.40% increase in the number of leaks detected. Despite this, our leakage target was not achieved. Our targeted action plan to recover leakage performance includes: • Detection and repair – even more investment to reduce leak running times • Focus on customer leaks – proactive identification and support for supply pipe repairs • Data and control systems – increasing network monitoring and innovative combined smart meters • Reducing our own use – making our operations more water efficient • Reducing customer usage – water efficiency initatives including customer education programmes to reduce demand Reliable wastewater services Reducing sewer collapses During the year we have delivered a c.20% reduction in the number of sewer collapses per 10,000km compared to last year with benefits arising from our K7 early start enhanced sewer cleansing and monitoring programme. Sewer blockages are a lead indicator for possible flooding and pollution from our network. The reducing trend demonstrates that our programmes of work to CASE STUDY: BOOSTING BIODIVERSITY reduce blockages in the network through investigating, During 2020/21, IN OUR REGIONS cleaning and repairing sewers and through publicity campaigns, will continue to help reduce the more we have recognised Our award winning ‘Upstream significant impacts of pollution and flooding on our improvements at Thinking’ programme has driven an customers and the environment. increase in the region’s biodiversity c.20,000 hectares Reducing internal flooding incidents since 2005. During 2020/21, we have We understand the impact that sewer flooding has in key catchments, recognised improvements on c.20,000 on customers, and we continue to do all we can to improving both water hectares in key catchments, improving reduce the likelihood of these events. As a result of both water quality and natural capital our unwavering focus in this area we are pleased quality and natural to have achieved our stretching 2025 commitment in our region. during 2020/21 – a c.35% improvement from 2019/20. capital in our region. We achieved this through the continuous review of We were pleased to have achieved our 2025 processes and systems to deliver improvements, commitment to planting c.100,000 trees during including a range of initiatives such as educational the year and we continue to work closely in campaigns aimed at influencing customer behaviours, partnership with wildlife charities, national parks hydraulic modelling, enhanced CCTV and a dedicated and farmers to deliver continued environmental investigation team supporting proactive targeting. benefits as we work towards planting an additional 150,000 trees over K7. Improved wastewater compliance South West Water has made considerable progress Our partnership with the North Devon Biosphere in improving the standard of the water it returns to Foundation targets further improvement in the environment over the past five years. During the water quality, quantity and soil health within the year we achieved our best ever performance of 99% catchment. This project seeks to create a UK for the number of compliant wastewater treatment first, landscape scale environmental intelligence works in 2020 as we work towards a goal of 100%. We programme harnessing artificial intelligence, big have enhanced treatment processes by embedding data, remote sensing & satellite earth observation innovative techniques including the use of I-Phyc’s to build real-time and predictive models. algae-based treatment to sustainably remove The Smart Biosphere triggers a range of economic phosphorus and micro-pollutants from sewerage and activity, integrated supply chain development, introduction of peak load technology. This nature- apprenticeships and jobs in the emerging based approach is beneficial to the environment, environment and natural capital economy, whilst reducing costs to operate with lower power whilst also mitigating flood risks, and improving and chemical consumption required. catchment predictability. Pennon Group plc – Annual Report and Accounts 2021 53

Net Zero by 2030 Strategic Report CASE STUDY: WATER SUPPLY INTERRUPTIONS Driving for environmental leadership Our New Deal business plan includes our largest The Group is committed to achieving net-zero carbon In 2020/21, we achieved our best-ever environmental programme in 15 years, recognising emissions by 2030 to support the drive for ambitious performance on water supply that a healthy environment is vital for the long-term climate change action. Achieving Net Zero will enable sustainability of the services we provide to customers. us to transform into a different kind of water company. interruptions, recording 5m 38s per Our plans are driven by a combination of activities, Bathing water quality improvements property (normalised value per total structured through three key pillars – bringing wider We are passionate about protecting and enhancing benefits to the South West: properties connected). This is a c.40% our regions’ bathing waters. During the year we improvement from 2019/20 and now delivered capital improvements at four bathing waters, 1. Sustainable living includes all our regions (South West representing 50% of our commitment to 2025. The • Reducing emissions through operational practices, Water, Bournemouth Water and Isles improvements to date include sustainable solutions increasing energy efficiency and using lower carbon Governance of Scilly). This value achieves not only such as sewer separation at Seaton in Cornwall fuel sources with plans for separation at Dawlish and Budleigh • Reducing leakage and helping customers to our 2020/21 target (6m 30s) but also Salterton in Devon. These projects help support our use less - protecting the environment and attains the increased performance commitment to maintaining excellent quality bathing saving carbon level required in 2022/23. waters, supporting the region’s economy. 2. Championing renewables Dedicated pollutions focus delivering results • Targeting c.50% renewable energy generation at This significant performance has been achieved in We launched our Pollution Incident Reduction Plan in our sites across the South West - working with this area by substantial investment in people and new September 2020, which has delivered immediate and partnerships and utilising our expertise in this area technologies. sustained improvements in our performance with the • Where we cannot generate enough ourselves Financial Statements Over the past few years we’ve ensured that the average number of monthly pollutions now less than to meet all our needs, 100% of the energy we focus is on supply restoration during an event and half of that seen before the implementation of the purchase will be from renewable sources new plan. we’ve supported this objective by the expansion 3. Reversing carbon emissions of both our Alternative Water Supply (AWS) team We are committed to delivering a step change in • Working in partnership to deliver natural carbon (AWS technicians / tanker drivers) and our AWS our performance in order to achieve the challenging sequestration through peatland restoration and fleet and equipment (including tankers, pumps, targets set for K7. Our plan centres around the tree planting AWS vehicles). We’ve also engaged heavily with the following key initiatives: • Supporting the development of innovative solutions supply chain (in particular our key partner for repairs • Root cause analysis – enhanced data modelling to develop low carbon footprint processes through and maintenance) and introduced a new working supporting proactive interventions research & development.

model that allows us to enhance our response and Other Information • Control systems and early warning – dedicated task operational capability. They have been exceptional Delivering for shareholders force and 24/7 incident recovery in their response to working with us to meet the South West Water’s strong operational and financial challenging targets of 2020/25. We continuously • Asset-specific plans – accelerated investments at performance has contributed to a Return on monitor supply interruptions performance with our key hotspot locations Regulated Equity of 7.8%. • Influencing customer behaviour – targeted teams and review events for learning outcomes. Totex savings of c.£70 million have been recognised educational campaigns. The following outlines the mindset and culture during 2020/21 supported by efficient delivery, whilst around event management: • Improving our environmental culture – additional advancing investments and additional expenditure on training, resources and empowerment for local areas of focus including pollutions and leakage. • Early consideration of event scale / early teams to find and fix issues immediately. assessment of likely duration Our efficient financing strategy continues to drive • Mobilise Alternative Water Supply (AWS) Living our purpose – a sustainable future outperformance with South West Water’s effective arrangements early – deploying AWS team and Understanding our role in society is crucial to interest rate^ at 2.5% (2019/20 3.4%), significantly lower assets (tankers, pumps etc.). maximising the value we create for stakeholders. We than Ofwat’s nominal cost of debt of 4.2%. • AWS teams focus on supply restoration whilst are proud that our ongoing commitment to do the In 2020/21, South West Water achieved c.80% of maintenance teams and network technicians right thing, in the right way has continued to deliver its ODIs (on or ahead of track) across a broad focus on repairs of failed asset sustainable results providing essential services to range of challenging bespoke, common and customers and communities. • E arly escalation to supervisors, managers, senior comparative measures. managers. • Use of hydraulic models to assess options CASE STUDY: NEIGHBOURHOOD FUND • Network intelligence – increased number of Our Neighbourhood Fund builds on our work to dataloggers deployed. support communities with funding available for community groups which inspire physical activities, In 2020/21, 197 properties were affected by an education, health and wellbeing and deliver positive unplanned supply interruption greater than 12 hours. environmental outcomes. Community groups This was significantly lower than our performance supported to date include: commitment target for the year of 767 properties. With this performance we have achieved our target

for the 2020/21 year and attained the performance

level required in 2024/25 and it reflects a c.82%

reduction from 2019/20 at 1,085.

The Hugs Foundation – offering therapeutic and supportive interventions for those suffering from 40% mental ill health, social exclusion, disadvantages and disabilities, and the Cornwall Accessible Activities IMPROVEMENT ON 2019/20 Programme – supporting families and children with Properties affected by unplanned supply additional needs to access activities during the interruptions greater than 12 hours school holidays. 54 Annual Report and Accounts 2021 – Pennon Group plc Our operations – Pennon Water Services Resilient and strong performance

Pennon Water Services demonstrated its resilience during a year of significant economic uncertainty by engaging proactively with its customer base whilst continuing to win new contracts and delivering against its strategic priorities, prioritising the safety of its employees, customers, and the communities it serves. Its continued focus upon simple, transparent, sustainable, and innovative retail services delivered low levels of customer attrition, strong growth and high levels of customer satisfaction.

Focus upon safety, people and Water retail services snapshot customer service In response to the global pandemic and due to its PROTECTING OUR PEOPLE AND COMMUNITIES investment in cloud-based technology, Pennon Water Services was able to swiftly implement business continuity plans. Prior to national lockdown, its employees were homeworking and connected to its 100% network and systems without disruption to any of its HOME WORKING EMPLOYEE CAPABILITY services to customers. Video conferencing software allowed the business to stay in close contact with its employees to not only ensure key performance indicators were met but crucially to monitor and support their mental wellbeing. Additional training was provided to all employees to help them through a difficult personal and professional year with regular team and Company-wide engagement activities, SIMPLIFYING OUR BUSINESS BRANDS supported by an increase in the number of trained

mental health first aiders and pro-active wellbeing

support. These measures were encompassed within

a broader people plan focused upon employee

development. This support allowed its employees

to concentrate upon delivering excellent service

to its customers.

Since inception, Pennon Water Services has at its core been a business focused upon its people and the service it delivers to its customers. Measured by the independent review site Trustpilot its customers rated it 4.85 out of 5, an increase from 4.55 and 4.25 in the two years prior. In more in-depth surveys with strategic water users, satisfaction with the service provided by SERVING OUR CUSTOMERS DURING COVID-19 its employees reached 4.92 out of 5. Its customers were offered jargon free advice and support to help them through a difficult trading period and to ensure they could wherever possible take advantage of relief >386,000 >55,000 measures available to them in the market and from the BILLS ISSUED CALLS HANDLED Government. In continuing its focus upon customer service, the business was able to deliver a reduction in its written complaint numbers of 175, 37% fewer than the prior year, positioning Pennon Water Services as one of the market leading retail companies. >4.8 out of 5 37% TRUSTPILOT INDEPENDENT REVIEW SCORES TACKLING COMPLAINTS Supporting the market As well as its customers, throughout the year Pennon All customer contact channels remained open throughout the year Water Services took an active role in engaging constructively with MOSL, regulators and other market stakeholders on measures designed to protect STRONG BUSINESS GROWTH businesses and the water industry from the effects of COVID-19. It worked closely with Ofwat, the UK Water Retailer Council (WRC) and jointly chaired the Retail Wholesale Group (RWG) and as a Code Panel >£20m <1.3% representative was instrumental in helping to form NEW ANNUAL CONTRACT VALUE SUPPLY POINT ATTRITION opinion on measures designed to protect the market and business interests. It devised customer support mechanisms in line with the resulting changes to the Customer Protection Code of Practice to assist businesses who were struggling to deal with the >£9m >1,000 impacts of COVID-19, balancing its own interests by CONTRACTS RENEWED NEW BUSINESS ACCOUNTS employing a fair but robust collections strategy. Pennon Group plc – Annual Report and Accounts 2021 55 Strategic Report Governance Financial Statements

Market share Water efficiency and sustainability CASE STUDY: LEAKAGE Other Information In our prior year report, Pennon Water Services spoke As part of its brand change to Source for Business, about being well placed to deliver against its long- Pennon Water Services rebadged its value-added term strategic objectives despite the difficult trading services under the acronym PURE. This represents conditions, exacerbated by COVID-19. Its expectations its focus upon protecting, understanding, reducing were that the challenging environment would flow into and enhancing how businesses interact with water, the new financial year, which proved to be the case saving them money and helping to create a more with widespread enforced business closure. Despite sustainable water future for us all. Its broad range of a landscape of economic uncertainty, Pennon Water services which include smart metering, leak detection, Services was able to grow its market share in line with leak repair, alternative water sources, water treatment its strategic plan through its strong reputation with and recycling, water hygiene and water efficiency helps market stakeholders and customers, delivering more its customers achieve their sustainability goals whilst than £20 million of new annual contract value and 14k supporting regional and national water efficiency efforts. Water companies have committed to reducing megalitres in consumption, whilst retaining business In using these services, customers benefitted to 2017/18 leakage levels by 50% by 2050. Pennon secured in prior financial years. Its growth agenda was the tune of over £1 million through cost avoidance, Water Services is working closely with its retail supported by low levels of customer attrition. retrospective rebates and allowances against customers to convert manually read meters into smart meters capable of reporting consumption Brand consolidation investment of under £200k. These savings aid both lower usage and leakage reduction targets across in 15 minute intervals. These devices along with Towards the end of the year, Pennon Water Services analysis of consumption history from manual reads consolidated its trading brands under Source for the UK’s water networks whilst at the same time supporting customer profitability and providing the have allowed it to identify leaks, notifying customers Business, a brand it has been trading with successfully and where needed providing pinpoint leakage throughout the UK since April 2017. The change opportunity to reinvest savings into further efficiency measures. Pennon Water Services is a member of detection and repair services. One such example will enable it to create a single consistent voice and of logger installation for a large industrial customer range of services, irrespective of customer location. various project and working groups looking at how to reduce the amount of water used across UK resulted in an alarm for increased flow. Following The change was part of a project which linked into its leak detection and repair work this prevented over measures to reduce long-term costs by improving self- networks. In addition it is reviewing options to work with wholesalers to access the Ofwat innovation fund, £220,000 in wholesale charges and is expected to serve capability. This has received positive feedback secure a sizeable rebate for the cost of lost water and engagement from customers and regulators. designed to grow the sector’s capacity to innovate, enabling it to better meet the evolving needs of already incurred, which can be reinvested into other customers, society and the environment, meeting leakage and efficiency projects. climate change challenges. £220,000 WHOLESALE CHARGE PREVENTION