Operational highlights

Our operational performance transformation, sector-leading Systems Thinking approach, and innovation culture continue to deliver sustainable improvements in operational performance.


The best service to customers

Our performance

Our operational performance over 2015–20 has delivered a total net wholesale ODI outperformance payment of £43.9 million. During the economic and social disruption caused by the COVID-19 pandemic we have been focused on customers, continuing to deliver reliable water and wastewater services and supporting those facing financial difficulties. We have the widest range of financial support schemes, are now providing tailored support to over 100,000 vulnerable customers signed up to our Priority Services scheme, and have made £3.5 million available to help those facing the most significant problems.

Key performance indicators

Wholesale ODI composite

SIM – qualitative

SIM – quantitative

Our future plans

Our plans for 2020–25 see us delivering even better service alongside real reductions in average customer bills, with stretching targets including a 34 per cent reduction in water quality contacts and 58 per cent reduction in supply inte rruptions.

Customers will receive matching benefits where outperformance leads to dividends that are much higher than proposed in our business plan. This is in addition to £71 million voluntary funding committed to our CommUnity Share scheme over 2020–25 to provide financial assistance for customers who need it.


At the lowest sustainable cost

Our performance

Our total expenditure (totex) allowance for the 2015–20 period was a significant challenge compared with the costs in our original business plan. Through a combination of efficiency in our capital programme and Systems Thinking, we closed the gap and outperformed our allowance on an underlying basis by around £100 million. Our excellence in treasury management helped us lock in a low cost of debt and, on an underlying basis before an additional bad debt charge for the expected future impact of COVID-19, we outperformed our revenue allowance (including margin) by around £13 million.

Key performance indicators

Totex outperformance

Financing outperformance

Household retail cost to serve

Our future plans

We have improved our efficiency and reduced our totex needs through innovation, market testing, and better challenge of cost needs. Ofwat rated our business plan one of the most efficient in the sector, and we enter AMP7 at the run-rate required to meet this totex.

We have locked in a cost of debt on our embedded debt that is better than the industry average, and maintain a robust capital structure with a target gearing range of 55–65 per cent, helping us maintain efficient access to debt capital markets throughout the economic cycle.


In a responsible manner

Our performance

We have reduced our carbon footprint 73 per cent since 2005/06, with over 95 per cent of electricity from renewable sources, and committed to six pledges to mitigate climate change. We have been rated 'World Class' on the Dow Jones Sustainability Index for 13 consecutive years, and achieved leading 4 star status for three of the last four years in the Environment Agency's annual assessment. We have reduced average household bills 10 per cent in real terms since 2010 with further reductions anticipated in AMP7, and gave over £35 million to communities and our Trust Fund during the 2015–20 period.

Key performance indicators

Annual average leakage

EA performance assessment

Dow Jones Sustainability Index rating

Our future plans

Through responsible and effective pension risk management, we have secured a self-sufficient position for our defined benefit pension scheme, meaning current and future pensioners are protected without reliance on the company.

We have stretching AMP7 targets for the environment, including a 15 per cent reduction in leakage and 20 per cent reduction in pollution incidents and our plans include strategic water resource development to support the North West and delivery of a north-south water trading approach to improve long-term drought resilience.

Financial highlights

We delivered a robust set of financial results for the year ended 31 March 2020, with strong underlying performance and maintaining healthy liquidity and a responsible level of gearing.


Underlying operating profit*

£743.9m

(2019: £684.8m)

Operating profit*

£630.3m

(2019: £634.9m)

Our performance

We have delivered another year of tight control over our underlying cost base.

Underlying operating profit increased by £59 million, largely reflecting allowed regulatory revenue changes and lower infrastructure renewals expenditure, with higher underlying depreciation largely offset by a reduction in our remaining underlying cost base.

Reported operating profit was £114 million lower than underlying operating profit mainly due to accelerated depreciation in relation to bioresources assets and costs relating to the ongoing COVID-19 pandemic.

Key performance indicators

Underlying operating profit

Underlying earnings per share

Our future plans

We have made great strides in efficiency in recent years, driving sustainable cost reductions in both wholesale and retail.

The total expenditure (totex) needs projected in our business plan were deemed to be one of the most efficient in the sector, and we exit the 2015–20 period at the run-rate needed to meet the required level of totex for 2020–25.

The COVID-19 pandemic creates some uncertainty in the economic environment and practical considerations in the delivery of our work, but we remain committed and determined to deliver our plans for the next period at a continued efficient cost.


Effective interest rate

3.4%

(2019: 3.3%)

Liquidity

£1.2bn

(2019: £1.0bn)

Our performance

Effective debt management continues to give us a robust financing position.

Our average underlying interest rate increased slightly this year from 3.3 per cent to 3.4 per cent mainly due to higher RPI inflation on our index-linked debt. We have £3.5 billion RPI-linked debt at an average rate of 1.4 per cent real, £0.5 billion CPI-linked debt at an average rate of 0.2 per cent real, and £3.2 billion nominal debt at an average rate of 2.9 per cent nominal.

We maintain a robust liquidity position, with liquidity comfortably covering the £0.7 billion debt that falls due for repayment across the next 12 months.

Our future plans

The low cost of debt we have already locked in, due to our industry-leading treasury management, compares favourably with Ofwat's cost of debt allowance for embedded debt in the 2020–25 period. The introduction of indexation on new debt will mean companies neither benefit nor suffer from outturn rates being significantly different from the rates assumed in setting the allowance, but we have historically demonstrated our ability to raise debt at efficient levels compared with the industry average and outperformed the benchmark index used for setting the cost of debt. We expect to continue to perform well against the rest of the industry in financing across AMP7.


Gearing: net debt to RCV

62%

(2019: 61%)

Dividend per share

42.60p

(2019: 41.28p)

Our performance

Effective debt management continues to give us a robust financing position.

Our average underlying interest rate increased slightly this year from 3.3 per cent to 3.4 per cent mainly due to higher RPI inflation on our index-linked debt. We have £3.5 billion RPI-linked debt at an average rate of 1.4 per cent real, £0.5 billion CPI-linked debt at an average rate of 0.2 per cent real, and £3.2 billion nominal debt at an average rate of 2.9 per cent nominal.

We maintain a robust liquidity position, with liquidity comfortably covering the £0.7 billion debt that falls due for repayment across the next 12 months.

Key performance indicators

Gearing: net debt/RCV

Dividend per share

Total shareholder return

Our future plans

We are maintaining our target gearing range for AMP7 at 55–65 per cent, supporting our stable A3 credit rating with Moody's, and our low-dependency pension position means we are no longer making deficit repair contributions and our employees and shareholders are protected from the risk of a large pension deficit.

We announced our AMP7 dividend policy in January when we accepted the final determination, targeting annual growth by CPIH inflation. However, it is too early to predict the full impacts of COVID-19, and we will review this policy as a clearer picture of the post COVID-19 economic environment emerges.

* A guide to alternative performance measures and a reconciliation between underlying operating profit and reported operating profit is shown in Our performance in 2019/20.