Anglian Water Services Limited Preliminary results
17 June 2021
Anglian Water Services full-year results 2020/21: strong operational performance through the pandemic, and good further progress on the delivery of our purpose, to bring environmental and social prosperity to the region we serve.
· Continued strong operational and financial performance and on-track delivery of capital programmes despite Covid-19, with an anticipated £10 million of outperformance rewards for 2020/21 and 81 per cent of performance commitments assessed as on track
· Competition and Markets Authority (CMA) redetermination process concluded; business focused on delivering ambitious Business Plan designed to address macro challenges of climate change and population growth by 2025, while preparing for PR24
· New financing structure announced which will lead to lower leverage for Anglian Water
· Company launches sustainability-linked bond framework to facilitate ground-breaking net zero bonds aligned to newly announced transitional carbon targets to 2025
· Five-point Community Recovery Plan launched today, underpinning support for community recovery post-Covid
· Group revenue of £1,351.8 million, a decrease of £68.1 million (4.8 per cent) on 2020 This is consistent with the price reduction for customers following the Final Determination and reduced demand from non-household customers, offset in part by increased demand for household customers due to Covid-19
· Adjusted profit before tax1 (PBT) for the period of £142.2 million, up £68.2 million, primarily the result of the non-cash impact of lower inflation on index-linked debt due to a fall in year-on-year average Retail Price Index (RPI) and Consumer Price Index (CPI). Adjusted PBT excludes fair value losses on derivatives of £23.2 million (2020: £30.4 million). These are volatile non-cash annual movements which distort actual economic performance and therefore should be excluded when assessing underlying profit. Including these fair value movements, profit before tax for the period is £119.0 million, up £75.4 million
· There were no dividend payments in the year (2020: £67.8 million). Based on the available free cash flow there was capacity to pay a dividend of £203.6 million. The Directors have proposed to pay a final dividend of £96.3 million
· No dividends were paid to the shareholders of Anglian Water Group Limited (AWGL), the ultimate parent company, in the year (2020: £nil). The above dividends do not represent dividends paid to our ultimate shareholders; at this time there is no proposal to pay a dividend to shareholders of AWGL. We are grateful for the ongoing support of our shareholders, who have foregone dividends since June 2017 for the long-term benefit of the company and its customers, in line with our purpose
1 As defined in the table on page 7
· No government support requested during pandemic. No employees furloughed and automatically applied Business Rates Relief, received for our recreation businesses, has been repaid in full
· A strong start to our £3.0 billion AMP7 capital investment programme. Gross annual capital expenditure across the business of £448 million (£221 million on capital maintenance, £226 million on capital enhancement and £1 million non-appointed). This is broadly in line with management expectations and achieved despite the challenges of the pandemic
· £10 million of rewards for outperformance under the Ofwat performance framework. Our performance is measured against 45 commitments that help us, our regulators Ofwat and our customers understand the progress we are making and what we’ve delivered
· Following the CMA Final Redetermination process, weighted Average Cost of Capital (WACC) set at 3.2 per cent on a CPI basis, balancing risk and reward for our shareholders, who have continued to support us through a period of no dividends
· New group financing structure being implemented to enable a reduction in gearing in the company. This will enhance and protect our credit ratings allowing us to borrow at competitive rates to support the investments customers have asked us to make.
Award-winning leadership on environment including net zero and climate change adaptation
· Strong track record on carbon reduction enables the launch of ground-breaking net zero bonds based on new 2025 interim carbon targets: a 30 per cent reduction in operational carbon from a 2018/19 baseline and a 65 per cent reduction in capital carbon from a 2010 baseline
· Detailed routemap to 2030 net zero target for operational carbon and 70 per cent reduction in capital carbon to be launched in July
· Best-ever performance on renewable energy in 2020/21 with 134.4 GWh generated from on-site assets, including new 42,000-panel solar array at Grafham Water, energised in September
· First UK water company to be included on CDP Global A list for its response for climate change, reaching top 3 per cent of 9,600 companies globally
· Anglian Water co-chaired Water UK working group which delivered world-first sector-wide routemap; CEO Peter Simpson continues to co-sponsor industry net zero 2030 commitment
· Ofwat Innovation in Water challenge funding secured to develop whole-life carbon measurement tool in partnership with @One Alliance and Welsh Water
· Company secures three Net Zero Carbon Initiative Awards (Water Industry Awards for 2020 and 2021, Utility Week Awards 2021) and joins Race to Zero as an individual actor
· First company in the UK to submit and publish Climate Change Adaptation report in the third round of the adaptation reporting power
· Five-point plan for green recovery secures £300 million accelerated investment in environmental programmes through Water Industry National Environment Plan (WINEP) at no additional cost to customers, with ‘amber’ schemes progressed to ‘green’
· WINEP includes schemes which will reduce the amount of water abstracted from sensitive areas by 85 million litres per day by 2025, and restore the health of precious and internationally important chalk streams in Anglian Water’s region
· 520 environmental schemes delivered in the first year of five-year programme (compared with a total of 1,000 schemes delivered between 2015 and 2020)
A leading employer
· Support for employee health, safety and wellbeing, track record on inclusion and ongoing people development sees Anglian Water named Utility Week Employer of the Year 2020
· No employees furloughed; commitment to recruitment maintained with all job offers honoured, 50 apprentices and six graduates appointed
· Company supports employee wellbeing through pandemic, launching Employee Assistance Fund and providing 24-hour access to virtual GP, Employee Assistance Fund, free subscription to Headspace app and stand-down half-days for 3,000 staff and partners
· New policy sees colleagues offered opportunity to swap Christian religious holidays for religious holidays relating to other faiths
· Annual employee engagement survey records best-ever employee engagement score of 74 per cent, up 2 per cent
· Gender pay gap report published despite requirement being deferred due to the pandemic; Anglian Water reports mean gender pay gap of 5.7 per cent (vs 5.9 per cent in 2019) and median pay gap of 11.6 per cent (vs 11.0 per cent in 2019)
Progress on social purpose and publication of Five-Point Community Recovery Plan
· Five-Point Plan for Community Recovery, published today, sets out Anglian Water’s commitments to its social purpose through supporting vulnerable customers; being an inclusive business and driving social mobility; investing in communities; supporting health and fostering wellbeing; and acting with integrity
· £1 million Positive Difference Fund, launched in April 2020, supports more than 100,000 beneficiaries through more than 160 community groups
· Anglian Water Social Contract, founded on 10 company-specific outcomes agreed with customers and five industry-wide Public Interest Commitments, published in June 2021
· Work underway with British Standards Institute and other partners to develop Publicly Available Specification (PAS) for Sustainable Purpose to be published in 2022
· Business in the Community Responsible Business Tracker 2020 – Anglian Water scores 73 per cent versus average energy/utility score of 61 per cent and overall reporting average of 41 per cent
· Anglian Water invited to become founding signatory of the Prince of Wales’s global Terra Carta Initiative in January 2021
Focus on customers maintained
· Financial support including payment schemes, instalment plans and concessionary tariffs offered to 319,466 customers facing affordability issues
· ExtraCare team signposts customers to more than £4 million of unclaimed benefits to which they may be entitled
· Sign ups to Priority Services Register up by 112 per cent year on year due to active promotion; register now supports more than 175,000 customers
· Increasing digital delivery of services to customers, with more than six million digital interactions in 2020/21
· Industry-leading leakage performance maintained and regulatory target exceeded for the 10th year running despite winter weather, with 81 per cent of performance commitments assessed to be on track
· Top quartile performance for internal and external flooding, notwithstanding winter flooding, earning outperformance payments estimated at £6 million
· Best-ever performance on interruptions to supply, earning projected reward of £1 million
· Estimated outperformance payments of £1.1 million each due for Customer
Measure of Experience and Developer Measure of Experience
· Properties at risk of low pressure reduced to record low
· Improved performance on pollutions with 20 per cent reduction in number of pollutions year on year; target not yet met
· Per capita consumption target missed with three-year average at 138.1 litres per person per day (provisional) compared to 136.1 in the previous year, following hot weather and lockdown-driven increase in household consumption; potential penalty deferred to end of AMP (2025) until pandemic impact assessed
Looking ahead: driving future resilience and supporting growth
· Smart meter programme underway with 164,406 smart meters delivered in year one
· Strategic Pipeline Alliance begins delivery of £400 million strategic interconnector programme to move water around the region, driving resilience to climate change and reducing abstraction
· Site selected for relocation of Anglian Water’s Cambridge Waste Water Treatment Plant to accommodate South Cambridgeshire District Council and Cambridge City Council’s vision for sustainable growth in North East Cambridge
· Continuing engagement with the Regulatory Alliance for Progressing Infrastructure Development (RAPID) on proposals for two large-scale multi-sector reservoirs, to be delivered in AMP10 (2035-40)
Commenting on Anglian Water’s preliminary results for the full year to 31 March 2021, Chief Executive Peter Simpson said:
“This past year has been challenging in ways previously unimaginable. Systems designed for a nine-to-five, commuter-orientated and office-based lifestyle have changed beyond recognition to support a home-based, flexibly working, home-schooling society. That is as true for our water supply and recycling networks as it is for the transport arteries of the country, or the high street’s retail offering.
“The pandemic triggered huge change in customer consumption of water: the combined impact of stay-at-home orders and hot weather saw demand soar, stretching our network capacity to its limits. We have put more than 1.4 billion litres into the network in a single day just eight times in the past 14 years; seven of those were in 2020. Water recycling was impacted too: peak usage shifted during the day, with different and often smaller water recycling centres carrying the weight of a population that wasn’t travelling into urban centres. This was followed by both the wettest winter since 1915, which saw pockets of persistent flooding spread out over significant areas of our region, and a prolonged series of sub-zero overnight temperatures, a combination which resulted in increased ground movement leading to 63 per cent more bursts than during 2018’s Beast from the East.
“Alongside the challenges of Covid-19 and dramatic weather patterns – a further reminder of the urgency of tackling climate change – we have also facilitated the Competition and Markets Authority (CMA)’s redetermination of our five-year Business Plan to 2025. We have emerged with clarity on our position for the remaining four years of our plan, and with a strong foundation for future resilience and growth. We remain grateful to the CMA for its careful consideration of the points we raised.
“The challenges we have faced have not found us wanting. We have delivered strongly; maintaining our services to customers and with 81 per cent of our stretching performance commitments assessed to be on track, despite targets having been set before the onset of the worst global pandemic in 100 years. Notable successes include maintaining our industry-leading performance on leakage, exceeding our target for the 10th year running; delivering our best-ever performance on interruptions to supply and meeting the industry target on internal and external flooding despite the wet weather.
“In the circumstances, to be reporting a likely outperformance reward of £10 million (2020: £9.5 million) is a performance of which we are very proud.
“On capital investment, too, we were not deflected by the challenges of weather and pandemic, delivering our full planned year one capital programme and investing £448 million in our region. Our smart meter programme is well underway; we have completed 520 environmental schemes through our Water Industry National Environment Plan, the largest in the sector; and later this month we will break ground on our strategic interconnector programme. This scheme, our largest infrastructure programme ever, will see hundreds of kilometres of large diameter pipeline installed by 2025 to bring water from the north of our region, where supplies are more abundant, down to the south and east where water is already scarce.
“Nonetheless, there remain areas where we see potential to improve. We will push to better our position in the Customer Measure of Experience league table, seeking to regain our position as industry leaders for customer service. We will also continue our focus on tackling and preventing pollutions, building on the strategy developed in our recently published Pollution Impact Reduction Plan.
“In the coming year we will maintain our focus on our environmental and social purpose, which is undimmed despite the challenges of the pandemic. It is almost two years since we changed our Articles of Association – the fabric of our company constitution – to enshrine what we think of as our triple bottom line: our commitment to delivering for customers and communities and for the environment as well as for the owners of the business.
“That triple bottom line has been much in evidence this year, through our support for the health and wellbeing of our people, which saw us named Utility Week’s Employer of the Year; through the delivery of our £1 million Positive Difference Fund, and the launch of our social contract; through our continued action on climate change and environmental recovery; and through the careful stewardship of the business, which enabled us to retain our stable credit ratings. We are also, as we announce today, implementing a new financing structure for the Group to enable a future reduction in the gearing of Anglian Water Services Ltd in order to maintain its solid investment grade credit ratings in the interest of customers and investors, the environment and long-term viability. Throughout the year we have been immensely grateful for the steadfast and patient support of our shareholders in challenging times.
“Despite the pandemic we have delivered our best-ever performance on renewable energy and shown leadership through our co-sponsorship of the water sector-wide Net Zero 2030 Routemap and the publication of the first Climate Change Adaptation Report submitted by any organisation in the latest round of reporting. We have supported environmental recovery through the commitments made in our five-point plan for a green recovery, published last September, which secured £300 million of accelerated investment in our Water Industry National Environment Plan at no additional cost to customers.
“And we are today launching our five-point plan for community recovery, a sister publication to our green recovery plan, which sets out our track record and the commitments we are making to our communities. It includes support for vulnerable customers; investment in communities, including the Positive Difference Fund and our STEM-focused education programme; commitment to inclusion and social mobility; support for health and wellbeing for our communities and our own people; and, finally, our approach to running an ethical, responsible business.
“The common thread in all these activities is acting in the public interest. We will continue to do so as we embark on the remaining four years of our Business Plan.”