AWS Annual Performance Report 2019
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ANNUAL PERFORMANCE REPORT 2019 Anglian Water Services Limited Introduction 4 Key Messages 5 Board Statement of Company Direction and Performance 9 Risk and Compliance Statement 14 Business Viability Statement 16 Statement of Directors' Responsibilities 22 Ofwat Disclosures 24 Table 1A - Income Statement 26 Table 1B - Statement of Comprehensive Income 31 Table 1C - Statement of Financial Position 32 Table 1D - Statement of Cash Flows 36 Table 1E - Net Debt Analysis 39 Table 1F - Financial Flows 42 Table 2A - Segmental Income Statement 56 Table 2B - Totex Analysis - Wholesale 58 Table 2C - Operating Cost Analysis - Retail 61 Table 2D - Historic Cost Analysis of Fixed Assets - Wholesale and Retail 63 Table 2E - Analysis of Capital Contributions and Land Sales - Wholesale 65 Table 2F - Household - Revenues by Customer Type 67 Table 2G - Non-household Water - Revenues by Customer Type 68 Table 2H - Non-household Wastewater - Revenues by Customer Type 69 Table 2I - Revenue Analysis and Wholesale Control Reconciliation 70 Table 2J - Infrastructure Network Reinforcement 72 Table 2K - Infrastructure Charges Reconciliation 73 Table 3A - Outcome Performance 74 Table 3B - Sub-measure Performance 92 Table 3C - Abstraction Incentive Mechanism 101 Table 3D - Service Incentive Mechanism 103 Table 4A - Non-financial Information 104 Table 4B - Wholesale Totex Analysis 105 Table 4C - Forecast Impact of Performance on RCV 107 Table 4D - Wholesale Totex Analysis - Water 108 Table 4E - Wholesale Totex Analysis - Wastewater 112 Table 4F - Operating Cost Analysis - Household Retail 116 .uk Table 4G - Wholesale Current Cost Financial Performance 118 .co Table 4H - Financial Metrics 119 ater w Table 4I - Financial Derivatives 127 2019 APR anglian Table 4J - Atypical Expenditure - Wholesale Water 130 Table 4K - Atypical Expenditure - Wholesale Wastewater 132 Table 4L - Enhancement Capital Expenditure - Wholesale Water 134 Table 4M - Enhancement Capital Expenditure - Wholesale Wastewater 137 Table 4N - Operating Expenditure - Sewage Treatment 141 Table 4O - Large Sewage Treatment Works 143 Table 4P - Non-Financial Data for Water Resources, Water Treatment and Water 149 Distribution Table 4Q - Non-Financial Data - Properties, Population and Other - Wholesale 162 Water Table 4R - Non-Financial Data - Wastewater Network and Sludge 167 Table 4S - Non-Financial Data - Sewage Treatment 172 Table 4T - Non-Financial Data - Sludge Treatment 176 Table 4U - Non-Financial Data - Properties, Population and Other - Wholesale 178 Wastewater Table 4V - Operating Costs - Water Resources 182 Table 4W - Operating Costs - Sludge Treatment 184 Notes to the Annual Performance Report 190 Data Assurance Summary 199 Independent Auditors' Report 210 External Assurance Report 214 Glossary 217 4 Introduction Annual Performance Report and required regulatory information In accordance with Ofwat guidance, we present over the following pages the Annual Performance Report (APR), for the year ended 31 March 2019. This provides specific and transparent information on progress on delivery of customer outcomes, service levels, costs and financial performance. The APR is prepared to comply with Condition F of the Instrument of Appointment of Anglian Water Services Limited as a water and sewerage undertaker under the Water Industry Act 1991. Additional commentary on our Outcome Delivery Incentive achievements is explained in the Strategic Report in our separately published Annual Integrated Report, which can be found on our website: www.anglianwater.co.uk. A full list of Ofwat's disclosure requirements is set out in the section called Ofwat disclosures. The APR performance tables fall into the following four categories: 1. Regulatory financial reporting 2. Price control and additional segmental reporting 3. Outcome performance summary 4. Additional regulatory information. Commentary has been included beneath the APR tables to explain significant year on year variances in performance, and to highlight assumptions where appropriate. The subheadings in the commentary refer to the APR table line numbers to aid navigation when reading the spreadsheet version of the APR. In addition to the above, this report includes the data assurance summary which demonstrates the process carried out by Anglian Water Services to evidence that information provided is reliable. At the end of the report are the Independent Auditors' Report and our External Assurance Report. The APR is prepared in accordance with the Regulatory Accounting Guidelines (RAGs) issued by Ofwat, which are based on International Financial Reporting Standards (IFRSs). There are differences between IFRSs and the RAGs and where there is a conflict, the RAGs take precedence. In this report, Anglian Water Services Limited is also referred to as Anglian Water, AWS or the Company. The Annual Performance Report was approved by the Board of Directors on 8 July 2019 and was signed on their behalf by: a a a b Peter Simpson Scott Longhurst Chief Executive Managing Director of Finance and Non-Regulated Business .uk .co ater w 2019 APR anglian 5 Key Messages Financial performance Appointed revenue for the year was £1,259.9 million, an increase of £31.6 million (2.6 per cent) on 2017/18 – see table 1A. Appointed operating profit was £317.9 million, down 5.5 per cent on the previous year (reflecting the impact of the 'Beast from the East' extreme cold weather event, followed by an exceptionally hot, dry summer, and higher depreciation, partially offset by increased revenue) – see table 1A. The continuing good progress on a range of operational efficiencies offsets inflationary cost increases – see commentary to table 1A. Cash generated from appointed operations was £692.7 million, up £57.0 million on last year, principally because grants and contributions are now included in other income rather than being shown as an investing activity as in previous years. This is due to a change in accounting standard, IFRS 15; underlying economic cash flows of the business remain unchanged – see table 1D. The dividend paid was lower and an equity injection was received in the year as part of the directors' previously announced aim of reducing gearing through to 2025. A second tranche of Green Bonds was issued – see Board statement of company direction and performance. Totex efficiencies were delivered as a direct result of continued focus on innovation and ground-breaking approach to capital delivery alliances – see table 4B. Outcome Delivery Incentive (ODI) rewards of £48.5 million were earned over the first four years of the AMP (in 2018/19 prices), including one small penalty in 2016/17 of £0.6 million – see table 3A. In 2018/19 we earned ODIs of £14.1million (in 2018/19 prices), meeting our performance level commitments for all but one ODI. All of this will be included within AMP7 price limits. The one we missed was in mean zonal compliance, where our performance remains in line with prior years and the majority of other companies. No penalties are payable as performance is within the deadband. In response to Ofwat’s challenge on financial transparency, table 1F has formally been introduced into section 1 of the APR. This shows the financial flows of the business on a notional and actual gearing basis for the current year and also an average for the AMP. This table has been subject to assurance from our external auditors. A hot, dry year The summer of 2018 was the UK’s warmest since 2006, the driest since 2003 and the sunniest since 1995. June was exceptionally dry. The chart below shows that a substantial proportion of our region received less than 10% of normal rainfall. 6 We experienced a prolonged spell of widespread warmth from late June to early August, with several days where the maximum temperature exceeded 25°C. The UK’s hottest day of the summer was recorded in our region, with 35.6 °C recorded at Felsham, Suffolk, on 27 July. A consequence of this unusual period of hot and dry weather was a high level of soil moisture deficit which, following to a relatively dry winter, persisted for the remainder of the year. .uk .co ater w 2019 APR anglian 7 How customers benefit from our ODI performance – see table 3A We once again beat our leakage target, despite an increase in mains bursts as a result of March 2018’s ‘Beast from the East’ and the hot, dry summer. We received the fewest ever number of contacts from customers about the taste, odour and appearance of their drinking water (1.18 per thousand customers). We saw a twenty per cent reduction on the prior year in the number of category 3 pollution incidents. Serviceability was maintained at ‘Green’ for all asset classes. Unrivalled support for the communities we serve We achieved the number one position in the customer service league table for the second year running, with a clear gap of 0.05 to the next best company. We also achieved our best ever score for the quantitative SIM measure, likely to give us the highest overall SIM score for any company. We have now delivered almost two decades of consistent upper-quartile service performance. We maintained supplies to all customers during the record breaking period of hot and dry weather in summer 2018, following no impact during 'Beast from the East'. We were instrumental in the creation of the water industry's Public Interest Commitment, setting new standards for a social contract with customers and stakeholders. Planning for the future We submitted to Ofwat a £6.5 billion investment plan for 2020-25 (reduced by £64 million following the Government's ban of metaldehyde pesticides in December 2018), supported by more than 80 per cent of customers based on extensive acceptability and affordability engagement and online community research. Our plan proposes a circa 30 per cent increase in the investment programme on the current five year period to 2020 - to dramatically reduce leakage from our already industry leading position, protect our region from the risks of drought and flooding, enhance the environment, and meet growth through sustainable improvements to our network - while reducing average bills to customers.