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For the six months to 30 September 2016
Financial performance | Performance | Customers and communities | Environment | Employees
We are proud that for a further year we have been recognised as the leading water and sewerage company for customer service. We continue to engage on a day to day basis with our customers through a variety of channels. In any one year we talk to around 60,000 customers as part of this routine engagement and their voice does make a difference to the services we offer and the communications we provide.
This year we have introduced a new feedback tool that allows us to collect our customers’ views in real time and analyse not only the way they answer specific questions but also the verbatim comments they make. Feedback gives us invaluable insight into the areas where we can do better or where we do well.
Although we have made great progress, we are not standing still and under the direction of our customer experience group, comprising senior managers from across the business, we continue to seek ways to improve our service further and meet customers’ growing expectations.
Engaging with young people, our customers of the future, is very important to us and this year we set up our Young People’s Panel, the first of its kind in the water industry. This group of 21 sixth formers was recruited to help us learn how best to engage with them on long-term issues and to help us design the service they would like to receive in the future.
We actively monitor net promoter scores and benchmark our service against other well-known brands. As a member of the Institute of Customer Service we will be running the UK CSI survey with our customers with the aim of achieving scores equivalent to the top performing UK brands.
One of our key outcomes is to ensure bills are affordable for all and we remain committed to tackling this issue and growing the support we offer customers. Under the guidance of our expert advisory group we have introduced a new scheme this year to help low income pensioners who we believe can sometimes suffer in silence. From 1 April 2016, customers in receipt of pension credit have been eligible to a discount of around 20% off their bills to ease their household budgets.
We continue to make good progress against our performance commitments and the overall outcomes we set out in our business plan, with reductions seen in the number of customer contacts about water quality, the average minutes lost per property due to supply interruptions, pollution numbers and internal sewage flooding incidents.
Our compliance with drinking water standards has reduced by 0.01% due to a slight increase in the number of failures this year relating to domestic plumbing arrangements and our own assets. We continue to work closely with WRAS, the water fittings agency, on customers’ plumbing and promote WaterSafe (the industry approved plumber scheme) and the use of appropriate materials. Mains rehabilitation work continues, focused on areas with iron compliance risks.
Our grid project is progressing to programme and in addition to delivering reductions in abstraction as agreed with the Environment Agency, the new grid will connect our water resources zones, enable us to move water more effectively around our region, ensure we meet future demand and improve the resilience of supplies to customers.
Delivering environmental improvements to rivers and lakes in our region through enhancements at our sewage treatment works forms a large part of our programme over the next four years with the design of 11 schemes completed in the first six months of the year.
Work has progressed well in developing the systems, codes and changes required to allow non-household customers to choose their water and sewerage services retailer from April 2017. And we are successfully testing transactions in the six-month shadow operation period up to then.
In order to continue to deliver our high levels of performance it is essential that we continue to develop our staff, particularly with known skills shortages across a range of sectors including engineering, utilities and construction. We have identified apprenticeships as a key route to recruit, train and develop new talent to provide exciting career opportunities and provide for our future.
We recognise that a diverse and inclusive workforce brings richness to our work environment. We continue to benchmark our diversity practices to ensure we remain focused on improving the diversity within our workforce.
Our results for the half year show that operating profit decreased by £1.4m from £120.2m to £118.8m, whilst profit after taxation increased by £2.0m from £84.1m to £86.1m.
Total turnover increased by £4.6m from £262.2m to £266.8m. Regulated tariff turnover rose by £5.0m of which £4.9m was due to a 0.8% price rise allowed by Ofwat, increased by November RPI of 1.1%. There were increases due to new customers offset by the impact of customers switching to meters. Turnover from non-tariff activities decreased by £0.4m.
Operational costs (excluding depreciation) increased by £4.3m from £91.6m to £95.9m. There were upward pressures on costs due to inflation, new obligations, retail costs, repairs and EA charges. The savings that partially offset these increases came from the control of chemical usage, energy consumption initiatives and reduced private sewer costs.
Depreciation and amortisation increased by £1.7m from £50.4m to £52.1m. There was an increase of £2.0m in base depreciation, as new assets were depreciated for the first time, less an increase of £0.3m in asset disposals and deferred income.
Net interest payable decreased by £1.5m. Despite an increase in net debt gross interest payable decreased by £1.7m from £36.1m to £34.4m mainly because of lower inflation affecting index-linked bonds. However, there was a £0.2m increase in the interest costs relating to IAS 19 pension accounting whilst interest receivable was the same as last year. Overall the average cost of debt fell from 3.9% to 3.7%.
Total taxation, including deferred tax, moved from a £1.9m credit last year to a £3.8m credit this year. The corporation tax rate was 20% in both years and the mainstream corporation tax charge decreased from £13.7m last year to £12.2m this year, whilst deferred tax moved from a £15.6m credit last year to a £16.0m credit this year.
Deferred tax was a credit in both years because of the rate reduction from 20% to 18% last year and from 18% to 17% this year. Last year we recognised six months of the rate change in the half-year results, but this year we have recognised the full annual reduction at the half year. The tax rate reduction to 17% was announced in the Chancellor’s budget and has been substantively enacted by the balance sheet date.
Dividends declared for the six months to 30 September 2016 were £52.0m being an increase over £35.0m for the same period last year, as a final dividend of £10.0m relating to the previous year was declared this six-month period.
Gross capital investment for the six months was £93.3m, an increase over £87.4m last year as the capital expenditure programme increases in the second year of the regulatory period.
Net debt increased by £32.9m from £1,856.3m to £1,889.2m in the six months to 30 September 2016. The net cash inflow from operating activities was £170.9m less net capital investment of £88.7m, less interest payments of £21.2m, less tax payments of £14.0m, less dividend payments of £48.5m less working capital and bond accrual outflow of £31.4m.
Liquidity at 30 September 2016 was £269.0m comprising cash deposits of £119.0m and £150.0m of undrawn bank facilities.
Since April 2015, our five-year and long-term plans have been organised around nine outcomes, identified as the highest priorities for customers. The nine outcomes include the measures with targets for 2016-17.
Performance across the measures in the first half of the year has remained stable, with reductions seen in the number of customer contacts about water quality, the average minutes lost per property due to supply interruptions, pollution numbers and internal sewage flooding incidents.
We continue to make good progress against our performance commitments and the overall outcomes we set out in our business plan as shown in the table below.
* These are calendar year measures and so the half-yearly performance shown is at the end of June 2016
** The bathing water season runs from May to September each year
Excellent service for customers
Excellent customer service is one of our key outcomes and we put customers at the heart of everything we do.
We continue to top the Service Incentive Mechanism league tables for satisfaction and have continued to see a reduction in unwanted contacts, including repeat contacts, and written complaints are in line with last year. We engage on a day to day basis with our customers through a variety of channels and in any one year we talk to around 60,000 customers as part of this routine engagement – their voice makes a difference to the services we offer and the communications we provide.
This year we have introduced a new feedback tool that allows us to collect our customers’ views in real time and analyse not only the way they answer specific questions, but also the verbatim comments they make.
Feedback gives us invaluable insight into the areas where we can do better or where we do well. It shows that our high performance on satisfaction and ease of resolution measures are due to our prompt, warm voice telephone answering, wide choice of communication channels, quick response times, first-time resolution of problems and keeping customers informed of what we are doing at all times.
We continue to make wider use of proactive text messaging and social media posting during operational problems such as burst water mains and are extending the opportunities for customers to send photographs during operational work, helping us shorten our diagnosis and repair times.
Our alternative digital contact channels, such as Live Chat, texting and online self-service, are increasing in popularity and we are constantly improving the customer experience in this area. We continue to see a growth in customers signing up to our ebilling service and intend to improve the service later this year and into next.
We continue to review our bill and billing information and this year will be introducing graphical water use information on metered customers’ bills. This will help them to compare their water use over time.
We’ve also sought the views of our online Have your say customer panel on our twice-yearly customer magazine. Not only was the feedback very positive, but the panel have also given us some great ideas for future articles.
The independently chaired Wessex Water Partnership meets regularly to represent the views of customers and key stakeholder groups when reviewing our performance. The Partnership comprises a range of individuals from regulators, NGOs and other bodies. This summer it published its first annual report on its activities and the outcome of its challenge and review of our performance during the first year of the 2015-20 period.
In our business plan we committed to making our service inclusive and accessible to all customers and this is particularly important if a customer becomes vulnerable, which can happen at any time. Our approach to customer service and customer care, coupled with the support schemes we offer to customers in financial difficulty or who have specific additional needs such as a disability, has enabled us to retain the British Standard for Inclusive Services for another year, one of our performance commitments.
This sits alongside our government Customer Service Excellence award and Louder than Words charter. We also hold the best practice mark for our continuing support for the Keep Me Posted campaign.
We actively monitor net promoter scores and benchmark our service against other well known brands. As a member of the Institute of Customer Service we will be running the UK CSI survey with our customers with the aim of achieving scores equivalent to the top performing UK brands.
Earlier this year we consulted customers, including our online Have your say customer panel, on our 25-year vision. Later this year we will begin a wide scale survey to assess how customers value changes in service and this will feed directly into our business plan for the period from 2020.
Engaging with young people, our customers of the future, is very important to us. This year we set up our Young People’s Panel, the first of its kind in the water industry. This group of 21 sixth formers was recruited to help us learn how best to engage with young people on long-term issues and assist us in designing the service they would like to receive in the future.
One of our key outcomes is to ensure bills are affordable for all. We remain committed to tackling this issue and growing the support we offer customers in financial difficulty through our tap programme.
Tap offers customers tailored solutions to their affordability problems via a range of schemes and low rate tariffs to help them afford their ongoing charges and repay their debts, along with practical help to reduce their water and energy use. We provide this support through long standing and very effective partnerships with the debt advice sector, either face to face, telephone or online providers.
Under the guidance of our expert advisory group, we have introduced a new scheme this year to help low income pensioners who, we believe, can sometimes suffer in silence. From 1 April 2016, customers in receipt of pension credit have been eligible to a discount of around 20% off their bills to ease their household budgets.
We are working hard to raise awareness of our affordability support and increase uptake of our schemes and there are now around 25,000 customers benefitting from tap.
We are expanding our network of more general advice partners, making it as easy as possible for customers to access our schemes, particularly those who receive telephone or online advice, and using deprivation data to better target our publicity.
We remain very active out in the community attending or hosting community events, sometimes with our partners, to give customers more opportunity to discuss their financial situation and the support we can give face to face.
Our links with local councils and housing associations to promote our schemes continue to expand. We are also starting an exciting pilot project with the DWP to contact customers on benefits who may need our support.
We are in the fourth year of our Money Matters awards and have so far provided grants to 15 different organisations delivering financial capability and money management projects across our region. We are expanding this to fund local community outreach projects in hard to reach areas.
We set ourselves a challenging five-year leakage reduction target for this AMP, down from 70Ml/d to 66.5Ml/d. Last year we successfully achieved our first leakage reduction target, finishing 1Ml/d below our target of 69.3Ml/d. This year we have seen a small rise in leakage in the first six months of the year and have deployed additional resources and implemented an action plan to ensure we achieve our end of year leakage reduction target of 68.6Ml/d.
Highest quality drinking water
Our mean zonal compliance for the half year to the end of June was 99.97% but by the end of September had reduced to 99.95% – 0.01% lower than last year. This measure, which is the mean of zonal compliance for 36 parameters in 80 zones, is very sensitive to individual failures. So far in 2016 there have only been 18 failures of more than 26,000 tests performed. The majority can be attributed to domestic plumbing and service pipe issues such as lead pipes, copper plumbing and nickel in taps. With eight failures for lead this year, working with our customers using our lead pipe replacement strategy has never been more important.
Five failures were because of iron from water mains and one contained manganese from mains sediment. Targeting our network maintenance programme means mains in one zone that experienced iron failures are already being renovated. We are currently working to keep customers better informed when supply disruption occurs and to further reduce discolouration.
Investment in water treatment to combat deteriorating raw water quality has continued to focus on more sustainable solutions including our innovative strategy of catchment management. Our catchment specialists are working alongside the local farming community to identify potential pollutant pathways and find alternative management practices that protect and improve raw water quality. Our programme includes long-term initiatives with farmers aimed at reducing levels of nitrates and pesticides.
Considerable emphasis has been placed on developing and improving essential working relationships with regulators and public health professionals to ensure that we are in tune with their priorities. Major process and maintenance works are underway to improve groundwater sources and provide additional treatment at Hooke and Cattistock in Dorset and Codford in Wiltshire.
Sewage flooding minimised
Sewer flooding is rare but when it does occur it can be devastating so tackling it is particularly important. We have introduced a new measure which expands the flood register to include internal and external flooding. It also has been extended to include lower likelihoods and this year we have already reduced the risk of flooding at 64 properties/locations.
The responsibility for flooding is often complex and we work with local authorities as they produce surface water management plans and strategies to review flood management. These meetings are increasing in frequency and we are being consulted more than before, together with the planning authorities responsible for approving sustainable solutions. We are also contributing towards partnership schemes where we have a vested interest.
On 1 October, as a result of new government legislation, 384 sewage pumping stations were transferred from private ownership to Wessex Water – meaning the cost and hassle of looking after these essential pieces of infrastructure has been removed from many members of the public. Our preparation works for this change have meant that the transfer has gone smoothly and minimal emergency calls have been received.
Education and community involvement
The work we do with students continues to grow with thousands visiting our education centres around the region. Our science, technology, engineering and mathematics (STEM) ambassadors have been teaching skills that in turn help to raise awareness of the importance of saving water and understanding the treatment process.
We took the Wessex Water exhibition vehicle to several venues this summer to meet customers face to face. We attended Yeovilton Air Day, Bournemouth Air Day and Dorset County Show, suggesting ways to save water in the home and raise awareness of pipework responsibility to help reduce blockages. We also took the opportunity to ask customers about their priorities as part of our Have your say survey.
Our Watermark and sustainable Watermark awards include the grid community awards for groups with environmental projects that need funding in areas affected by our water supply grid programme.
Our programme of engaging with others to help drive behavioural change and meet our business performance commitments and wider socio-environmental objectives has been gaining momentum in 2016. Alongside our metering and water efficiency programmes, encouraging water efficient behaviours to reduce overall water demand, we have been supporting programmes that aim to improve bathing water quality through behavioural change.
At Burnham-on-Sea we are working with the Litter Free Coast and Sea organisation to create community awareness and understanding of how they can improve their bathing water quality. In providing the community with the knowledge and practical tools to enable this we hope to effect sustainable behaviour change.
We also aim to reduce the occurrence of sewer blockages by engaging with customers on the issue of sewer misuse. Our sewer misuse strategy in 2016 includes a new Fats, Oils and Grease (FOG) programme and we submitted a complaint to the Advertising Standards Agency and Trading Standards regarding the mis-labelling of wet wipes as flushable. Together with the rest of the water industry and a number of NGOs we are continuing to lobby manufacturers and retailers for change at a national and international level.
Meeting new demands
Maintaining the supply of water remains a primary objective and last summer marked the 40th year without supply restrictions in our region.
We have kept our focus on reducing leakage from our extensive network of around 11,500 km of mains and have consistently met the leakage target every year.
In the first six months of 2016-17 we introduced an enhanced metering programme to increase the proportion of households with a meter. We have been encouraging unmetered customers to switch to a metered supply by writing to those who currently pay the highest charges based on the rateable value of their home. We have also been running a social media campaign promoting the benefits of metering.
In October 2016 we are launching a new policy to meter households when there is a change in occupier – this was included in our business plan and water resources management plan for this AMP and was broadly supported by customers because metering is seen as the fairest way to pay.
Our water efficiency programme helps customers reduce their consumption and this year we launched a new free Home Check service providing in-home water and energy efficient device installations and bespoke behavioural advice to customers. The service has been launched as a pilot in Taunton and Bridgwater and we plan to roll it out to all customers next year. We have also continued with our schools’ education service and commercial audits and are on course to meet our water efficiency performance commitment for 2016-17.
Improved bathing waters
Investment is primarily focused on improving the quality of Burnham Jetty bathing water in Somerset. The project at Blake Gardens, Bridgwater, which has been completed six months early, involved increasing the amount of sewage that can be pumped forward to the treatment works to reduce the number of sewer spills to the environment during heavy rainfall. Other schemes have also moved into construction, including significant storage tanks at Bristol Road, Bridgwater and Sloway Lane near Highbridge.
Event duration monitoring equipment continues to be installed at combined sewer overflows (CSOs) throughout our region – we installed 74 last year and have surveyed and designed another 100 installations for completion by March 2017.
Rivers, lakes and estuaries protected
Providing environmental improvements to rivers and lakes in our region through enhancements at our sewage treatment works will form a large part of our programme over the next four years.
During the first six months of this year we completed the design of four schemes to improve levels of ammoniacal nitrogen discharged from our STWs at Glastonbury, Grittleton, Wanstrow and Kilmersdon. The objective is to avoid any deterioration to river water quality due to development in the STW catchments.
We have also progressed with the appraisal and outline design of the first seven schemes in our programme for improved phosphorus removal to meet the Urban Wastewater and Water Framework Directive water quality objectives. These are at our STWs at Calne, Sutton Benger, RAF Lyneham, Royal Wootton Bassett, Cheddar, Taunton and Wellington.
We have also been working with the Environment Agency to complete the development of an innovative catchment permitting process to apply to phosphorus removal projects across the Bristol Avon river catchment area. Work has begun on optimising the performance of 13 STWs where the phosphorus consent will be tightened from 1 January 2017.
The National Environment Programme also includes a series of phosphorus technology trials to test the ability of new processes to meet future, more stringent concentrations required by the EU Water Framework Directive. Under this programme we have been working with the University of Bath to design and build a trial high rate algal pond for the removal of phosphorus from sewage effluent at our Beckington STW.
We have recently completed the trial of an online auction platform, EnTrade, to reduce the nitrates leaching into Poole harbour. Building on our previous catchment management work to reduce the nitrogen load into the harbour by 40 tonnes by 2020, EnTrade changed the focus of the reduction measure from a £ per hectare approach to the cost to remove each kg of nitrogen.
Farmers placed bids on the EnTrade online platform over a three week period in June 2016 to secure contracts for nitrate reduction measures; we advertised a 20 tonne reduction as part of the trial and received bids for 47.5 tonnes over the auction duration. This auction method saved an additional 30% compared to previous catchment programmes. Based on the results so far, we estimate that EnTrade can provide an auditable source of nitrate reductions for a quarter of the cost of an equivalent asset solution at a sewage works.
Our grid project is progressing well and in addition to delivering reductions in abstraction as agreed with the Environment Agency, the grid will connect our water resources zones, enable us to move water more effectively around our region, ensure future demand is met and improve the resilience of supplies to customers.
Progress in the first six months of the year includes completing the redevelopment of Sturminster Marshall pumping station, which can now supply Blandford, beginning the reconstruction of Black Lane water treatment works and completion of Wood Hill service reservoir, near Dorchester.
Biodiversity – Partners Programme
Phase 5 of our Partners Programme began in April 2015, running for the duration of the AMP until March 2020. This programme supports external organisations across our region to conserve and enhance biodiversity outside our own landholding and to deliver biodiversity gain in line with our core functions. The projects are focused on three themes, including science and research, partnership working and catchment scale delivery.
Following feedback from previously funded organisations, our approach has changed to fund fewer projects at a higher level and to provide a twice-yearly small grants fund. We are currently providing funding worth £70,000 a year to four large projects and our new small grants scheme has provided two grants of £2,500 so far in 2016.
The successful applicants for the final round of funding for small grants in 2016 will be decided shortly.
Biodiversity – land management
We own or lease just over 2,900 hectares of land which includes operational sites, tenanted agricultural land, nature reserves and amenity or recreational land. We have a duty, under the Water Industry and Natural Environment and Rural Communities Acts, to conserve and enhance biodiversity on our landholding.
In AMP6 we have a new performance commitment to assess 100% of our landholding for biodiversity with a view to bringing as much as feasible into appropriate management. To date, 62.6% has been assessed including approximately 50% already under management with some form of conservation aim.
We have retained our high levels of compliance with the Defra SSSI SLA target, with more than 99% of our SSSIs in favourable or recovering condition. We are still working to determine the best mechanisms for maintaining consistent management actions on operational sites.
Managing our abstractions
Our performance commitment to minimise exports from our groundwater source at Mere when river flows are low, has been working well in 2016. To the end of September, just under 40 million litres of water had been exported, less than 10% of what could have been exported if we had followed the abstraction licence without the Abstraction Incentive Mechanism in place.
We diverted 98% of all non-sludge waste from landfill for the first six months of 2016-17. The only remaining wastes now being sent to landfill are contaminated wastes and a small amount of general waste – we are continuing to explore recycling routes for these remaining materials to move towards a 100% landfill diversion rate.
Reduced carbon footprint
All sludge generated from the wastewater treatment process is disposed of safely and in a way that meets mandatory standards. An increasing proportion of our sludge is treated using the anaerobic digestion process which reduces the volume of sludge for recycling while generating renewable energy, reducing our costs and carbon footprint.
We have a performance commitment to increase the proportion of self-generated energy and are investing in upgrades to our sludge digestion facilities to increase the proportion of sludge that we digest. This includes the installation of advanced anaerobic digestion at Trowbridge and Taunton and additional digestion capacity at Berry Hill, Bournemouth. We are exporting power from Trowbridge following installation of the new plant in 2015-16. Meanwhile, biomethane export from Bristol sewage treatment works from April to October was 25% more than the same period in 2015-16.
Apprenticeships, talent and skills attraction
We see apprenticeships as providing an important role in providing resources and skills right across our business. We are holding regular apprenticeship events and are looking to develop higher level apprenticeships to complement our graduate recruitment. We have actively recruited apprentices and taken steps to make sure that the relevant training, education and opportunities are in place to nurture and develop their skills.
Throughout 2016 we have invested significantly in our apprentice programmes and doubled our current number of apprentices, with 41 appointed this year. We also reached the milestone of our 100th government funded apprentice in the business.
It is essential that we continue to develop our talent, particularly with known skills shortages across a range of sectors including engineering, utilities and construction. We have identified apprenticeships as a key route to recruit, train and develop new talent to provide exciting career opportunities and provide for our future.
Diversity and inclusion
We know that a diverse and inclusive workforce brings richness to our work environment and believe that attracting, developing and retaining employees who reflect the diversity of the customers we serve is essential to our success.
We are progressing development and promotion of diversity and inclusion and have advanced a range of initiatives focused on attracting, retaining and developing a diverse workforce. We promote flexible working options and have launched a flexible retirement policy this year. We continue to benchmark our diversity practices to ensure we remain focussed on improving the diversity within our workforce.
Across our technical apprenticeships (utilities, civil engineering, water process and EM&I) we have a 12% female ratio which is considerably greater than the West of England apprenticeship gender split of 7% in engineering and 2% in construction.
Health and safety
The health, safety and welfare of our staff and those with whom we interact as part of our daily activities remain a priority. We aim to achieve a position with zero accidents, acknowledging that this does not mean there will not be another accident, but that we aim to work for as long as possible without an injury. The health and safety management group, with director and senior manager representation, supports this objective and provides proactive leadership and scrutiny for our safety performance. The group meets regularly and promotes continual improvement in safety performance, sets challenging goals and seeks to learn from all incidents, near misses and hazard observations.
Safety performance for 2016 is currently within our target for the year but we must not become complacent. While reportable incidents continue to be of interest, the small numbers of these reported annually can exaggerate overall performance and we have moved towards a holistic view of our overall performance as we create a healthier and safer workplace.
During the year we encouraged staff to report all incidents and especially near misses. Any report that raises significant concerns is subject to additional investigation and, where appropriate, the situation is rectified or procedures improved. The principal causes of all incidents remain as slips, trip and falls and manual handling.
Increasingly the behaviour of staff is being identified as a contributory cause of incidents and we have started to build on Engineering and Construction’s Make it Right initiative by introducing a Safety Smart initiative in Operations that includes specially tailored behavioural safety and manual handling training.
Our commitment to safety and performance has been recognised by two external safety bodies. Engineering and Construction were awarded the prestigious Sir George Earle trophy by RoSPA – the pinnacle of the RoSPA awards scheme and internationally recognised as the premier performance award for occupational health and safety. RoSPA acknowledged our committed and insightful management and innovative and unique approach to changing behaviour based on expanding the awareness of teams, whilst also engaging and using them as a source of innovation.
Operations were awarded a distinction in the British Safety Council’s 2016 International Safety awards with a score of 59 out of 60 and shortlisted for the third year running for the Power and Utilities sector award that recognises outstanding performance in the sector.