Northumbrian Water Limited Annual Report and Financial Statements

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Northumbrian Water Limited Annual Report and Financial Statements NORTHUMBRIAN WATER LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 Registered company no: 02366703 2 ANNUAL REPORT AND FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2020 CONTENTS PAGE STRATEGIC REPORT STRATEGIC REPORT 3 Chairman’s statement 4 Chief Executive Officer’s review 6 Business overview 10 Section 172 Statement 19 Performance review 21 Financial performance and structure 54 Risk report 57 GOVERNANCE REPORT 64 Chairman’s introduction 65 Senior Independent Non-Executive Director’s report 67 Corporate governance 69 GOVERNANCE REPORT Remuneration Committee report 88 Directors’ report 100 FINANCIAL STATEMENTS 105 Income statement 106 Statement of comprehensive income 107 Balance sheet 108 Statement of changes in equity 109 Cash flow statement 110 Notes to the Financial Statements 111 Independent auditor’s report to the members of Northumbrian Water Limited 142 STATUTORY FINANCIAL STATEMENTS STRATEGIC REPORT 3 STRATEGIC REPORT STRATEGIC REPORT GOVERNANCE REPORT STATUTORY FINANCIAL STATEMENTS STRATEGIC REPORT 4 CHAIRMAN’S STATEMENT Our strong performance is underpinned by our five strategic themes: Customer, Environment, Competitiveness, People and Communities. At each meeting the Board has reviewed performance against a balanced scorecard of measures related to these strategic themes in addition to health and safety, financial performance and other key factors. A more detailed overview of our work and STRATEGIC REPORT progress on these themes is set out later in this Strategic Report. Our Chief Executive Officer (CEO), Heidi Mottram, describes in her Review our continued strong performance delivered against existing commitments but, importantly, we have also tried to lay solid foundations for the coming years in our 2020-25 Business Plan (our Plan). We submitted our Plan in August 2018. This was a A J Hunter very collaborative and consultative exercise, conducted in partnership with our customers and other key stakeholders and we were encouraged by the very positive response our Plan received, The Board of including 91% customer support. Our Plan committed to offering significant bill reductions Northumbrian Water to our customers alongside real improvements in service. It was clear from our detailed and Limited (NWL/the extensive work with customers that they shared our firm belief that protecting the environment Company) recognises and ensuring the resilience of our services should remain two of our key priorities. We were GOVERNANCE REPORT that, for most of our confident that our Business Plan would have enabled us to deliver on those fronts in a cost customers, we are the effective manner, as we evidenced to Ofwat, and as supported by detailed analysis confirming that only available supplier the investment we proposed is in our customers’ best interests for the long term. Contrary to our of water. customers’ wishes, in its Final Determination of prices for 2020–25 (FD), Ofwat rejected several The Company therefore carries very significant key elements of our Plan, including critical responsibilities and must strive to meet the high projects to enhance resilience and reduce sewer expectations of everyone we serve and work flooding. with. As a result, the Board challenges itself and The Board assessed the FD in detail, in the the Company’s employees, to deliver improved context of the complex environment in which performance each year, so that our customers’ NWL operates, and the varied risks to which it is high expectations can continue to be met. Our exposed, which are often difficult to forecast Company’s vision, however, remains the same accurately. Although the Board considers that the – to be the national leader in the provision of Company remains financially viable in the short sustainable water and wastewater services. term, it unanimously agreed that the FD does not It is a primary duty of the Board to balance the enable NWL to maintain the sustainable financial interests of all our stakeholders fairly, whilst resilience required to ensure that it can continue meeting our fiduciary duties as directors. As over the longer term to provide the reliable and Chairman, I believe the Board strikes the required high quality services that our customers need STATUTORY FINANCIAL STATEMENTS balance very well, assisted by the robust and rightly expect of us. governance arrangements we have in place, which are set out in detail in our Corporate Governance report. STRATEGIC REPORT 5 Therefore, as a measure of last resort, on 14 February 2020, the Company rejected the FD and asked Ofwat to refer it for redetermination by the Competition and Markets Authority (CMA). This process is underway as I write this statement and we expect to know the outcome no later than March 2021. Notwithstanding the CMA appeal, it is our people that are our ‘front-line’ and NWL’s performance depends entirely on their continued engagement, initiative and hard work. I would like to sincerely thank all our employees for their dedication and commitment this year, and in particular given the STRATEGIC REPORT tremendous challenges posed by Covid-19. Finally, I would like to welcome Mike Porter, who joined us on 29 June 2020 as Chief Financial Officer, and express the Board’s appreciation for the valuable contributions made by Frank Frame as a Non-Executive Director (NED) between 2011 and 2019 and Chris Johns as Finance Director between 2013 and 2020. Frank retired from the Board at the end of 2019 and Chris stepped down in May this year. We wish them both well for the future. I hope you find our Annual Report and Financial Statements interesting and helpful. GOVERNANCE REPORT A J Hunter Chairman STATUTORY FINANCIAL STATEMENTS STRATEGIC REPORT 6 CHIEF EXECUTIVE OFFICER’S REVIEW 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 STRATEGIC REPORT towards this vision during 2019/20, and remain one of the leaders in our industry. to share vital information and a variety of online tools to bring our people together. Guides such as the Health & Wellbeing Guide were delivered in interactive formats to encourage employee take up. We understand how difficult this time has been for many of our customers and we built on our existing ‘Water without the Worry’ campaign through direct communications to 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. We have built on other customer messages such as ‘Bin The Wipe’ to reinforce that, even during GOVERNANCE REPORT H Mottram toilet roll shortages, other materials should not be flushed down the toilet. But before I review some of the achievements we are most proud of this year and look forward to Our purpose is not only to deliver this essential the year ahead, I would like to talk about the service for customers, but also to make a wider impact of the current Covid-19 pandemic and contribution to support our communities and how we have responded to the many challenges enhance the environment we all depend on. The it has created. impact of the pandemic has brought this responsibility into even sharper focus. COVID-19 Recognising this we were one of the first businesses to sign the ‘C-19 Business Pledge’ (see During this time the vital importance of page 7). This pledge commits us to supporting our delivering clean water and safely taking away customers, employees and communities as our wastewater has perhaps never been so clear. I am part in helping the country pull through the incredibly proud of how our teams and partners Covid-19 crisis. have come together to continue to provide our We chose as a business not to furlough any staff, customers with this essential public service in with those who could not carry on their normal the face of the pandemic. work either trained to support other parts of the Keeping our employees safe was our first priority, business or given the opportunity to help others and we were able to quickly enable our customer in our communities. This included delivering and support teams to work from home, in line essential food and prescriptions, and making with government guidance, as well as taking welfare phone calls to vulnerable, isolated people. measures to ensure that our operational and field The Covid-19 situation is not over yet and we will workers could continue to carry out their STATUTORY FINANCIAL STATEMENTS continue to respond to government guidance as it essential work safely. We utilised multiple develops and ensure that we keep delivering our communication channels to keep our people key services safely, and look after our employees, informed and engaged, using daily email updates customers and communities. STRATEGIC REPORT 7 OUR C-19 PLEDGE Making OVER £1,000,000 of support available during the COVID-19 pandemic This matches our commitment as one of the first signatories of the C-19 Business Pledge STRATEGIC REPORT GOVERNANCE REPORT STATUTORY FINANCIAL STATEMENTS STRATEGIC REPORT 8 OUR PERFORMANCE IN 2019/20 Innovate East event with Anglian Water. I am delighted to see ideas from our earlier events We have been through a major transformation coming through into practical use within our programme in our customer teams over the past business, such as our Digital Twin to help us few years. This year we followed the better understand our customers’ experience of implementation of our new customer contact and our services. We have also gone global this year, billing system with our new operational contact launching our Amplify platform and opening up and planning system and, at the same time, we’ve real life challenges for people around the world to launched our new digital platforms.
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