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15 July 22

Affinity Water Ltd - Financial Results for year ended 31 March 2022

We have today published our Annual Report and Financial Statements for the year ended 31 March 2022, the second year of the 2020-25 price control period (Asset Management Plan 7; ‘AMP7’) on our website: www.affinitywater.co.uk/library

In summary, we have made good progress this year. Our performance has improved across all of our key areas of performance, we have re-defined who we are launching a new look for the company and have a new leadership team in place.

However, it has been a challenging year financially with a number of external factors having an impact on the business such as high inflation and rising energy prices.

The treatment of water, and distributing it to everyone's houses, makes energy one of our biggest costs, and energy prices have risen sharply, particularly in the second half of the year. In addition, with inflationary pressures, chemical prices have gone up {35%}. Our hedging strategy for energy has protected us to some extent and will do so for the year ahead. Nevertheless, higher prices than we planned for have been a challenge from a cost perspective.

We continue to align our operational KPIs and targets to the key performance commitments made in our AMP7 Business Plan in response to our customer outcomes:

  • Supplying high quality water everyone can trust;
  • Making sure everyone has enough water while leaving more water in the environment;
  • Providing a great service that creates value for all our stakeholders; and
  • Minimising disruption to everyone.

We maintain necessary stretching targets that respond to the significant social and environmental challenges we face – a rising population and increased demand for water, as well as a reduction in the availability of water in the years ahead. We continue to advance our planning to meet these challenges through our Water Resources Management Plan, PR24 plan and our longer-term strategy, as well as making sure we are on track to deliver on our leakage and PCC commitments for the period 2020 – 25.

We’re pleased to see great progress towards our challenging Per Capita Consumption (PCC) ambition to reduce demand for water.

PCC is the metric used by the water industry to measure average individual water use.

Whilst we have not quite hit our target for 21/22, we have still achieved huge savings in unprecedented times, which we believe makes us industry leading on absolute reduction volume and the trend is for our PPC to decline further.

During the pandemic, water use changed dramatically after the first lock down was introduced. In 2020/21, PCC in our area rose to an average 171 litres from a pre covid average of 155 litres per person.

However, we are now starting to see a declining trend and in 2021/22, PCC in our area reduced to an average of 157 litres per person. We also have in place an industry leading water saving campaign called ‘Save Our Streams’ that generated over 191,000 sign ups in just one year from its May 2021 launch to March 2022.

Through the campaign, we are able to offer customers free home water efficiency checks, free water saving devices and tailored advice on how to save water.

Unfortunately, we narrowly missed our 21/22 leakage reduction target – however we have driven leakage down to its lowest ever level we have had as a company.

Leakage is incredibly important to us and we know our customers want to see action on this to ensure we meet our commitment to them.

We have reduced leakage by 10.5% since the start of the current 5-year period in 2020 and are confident we will meet the 20% leakage reduction target by 2025. We will do this by continuing to use new innovative methods and technologies, such as artificial intelligence and digital networks, to find and fix leaks faster than ever before.

In 2021 / 22, we are very pleased to have won several entries in Ofwat’s Innovation in Water Challenge. These exciting initiatives include – Seagrass Seeds of Recovery to help with carbon sequestration and improve biodiversity, Smarter Tanks that will explore optimised strategies for real-time top-up control for drinking water and rainwater storage tanks and the world’s first ever at scale water-neutral new housing development in partnership with a New Appointments and Variations (NAV) company.

Collaboration has been key to winning these bids and we have worked across sectors, with other water companies, UK universities and government agencies with the aim to improve the efficiency and resilience of our water supplies.

Business highlights:

Financial performance

Revenue – £319.7 million (2021: £286.8 million).

Operating profit – £34.6 million (2021: £11.9 million).

Net loss (after tax) – £96.9 million (2021: net loss of £43.1million).

The net loss in the year is primarily the result of increased finance costs impacted by inflation on our index-linked bonds and an increased tax charge due to the change in tax rate from 19% to 25%.

£162.1 million (2021: £155.9 million) invested in enhancing and maintaining infrastructure and assets.

We entered into a series of power hedging swaps between May 2021 and February 2022 in order to hedge against wholesale energy prices.

During the year we put in place a Green Finance Framework, which aligns our strategic and sustainability priorities with our funding and financial strategy. In October 2021, we issued our first green bond with a nominal amount of £130.0 million and total proceeds of £147.8 million, which will be used to fund projects which are fundamental to our Sustainability Strategy and will support our environmental objectives.

All of our credit ratings were confirmed and remain investment grade.

We have also been re-accredited with the Fair Tax Mark for the fourth year, recognising that we pay the right amount of corporation tax, at the right time and in the right place.

Operational performance

We recorded a Compliance Risk Index (‘CRI’) score of 0.87 for the 2021 calendar year, within the deadband of 2.00. This is our best performance yet. CRI is the metric the industry uses to measure water quality and is designed to illustrate the risk arising from treated water compliance failures.

We reduced our leakage by 10.5% (since base year). This did not achieve the targeted rate of an 11.1% reduction, but was a reduction of 16.6Ml/d since 2020/21. Failure against the target was mostly due to performance in the prior years; the measure being based on performance over a three-year average.

PCC decreased by 4.1% (since base year) but did not achieve the target of 4.9% reduction. PCC is measured as a three-year average, and there was an increase in domestic water use as the Covid restrictions meant changes to people’s behaviour, such as spending more time in the home. Whilst we have not quite hit our target for 21/22, we have still achieved huge savings in unprecedented times, which we believe makes us industry leading on absolute reduction volume and the trend is for our PPC to decline further.

Performance in the year was 100.2 repairs per 1,000km of mains against a target of no more than 148.6 in the year (2020: 155.8). Weather is a strong contributing factor in the number of mains repairs required in a year. 2021/22 experienced a benign summer and winter and, therefore, the year’s figures cannot be directly compared to the previous year’s without taking this into account.

The number of minutes per property where interruptions to supply was three hours or greater was our best performance in a year – 3 minutes 43 seconds – compared to our target of 6 minutes 8 seconds. This is reduction of over 2 minutes on 2020/21 performance.

Customer Measure of Experience (C-Mex) C-Mex is a mechanism to incentivise water companies to provide an excellent customer experience for residential customers, across both the retail and wholesale parts of the value chain. We have achieved 14th position out of 17 companies assessed against C-MeX. Our score for the year was 76.57, compared to the industry median of 80.43. We have moved up one place on the ladder since 2020/21.

Although written complaints increased by 14.8%, this was driven by the Universal Metering Programme installation rollout as, during 2021/22, we have installed over double than in the previous year. While the increase in UMP installations has inevitably resulted in an increase in metering related contacts, the percentage of written complaints to meters installed remained at encouragingly low levels, and continues on a downward trajectory to 0.57%, down from 1.63% in 2019/20 and 0.60% 2020/21.

The percentage of escalation (second stage complaints) has also fallen year-on-year -0.1pp to 3.4% of written complaints.

Developer Services Measure of Experience (D-Mex): (D-MeX) is a mechanism to incentivise water companies to provide an excellent customer experience for developer services (new connections) customers. These customers include small and large property developers, self-lay providers (SLPs)1, and those with new appointments and variations. Our D-MeX score for 2021/22 was 85.54, compared to an industry median of 85.26.

We are placed 8th out of 17 companies in the industry league table, an improvement of two places on 2020/21 and continuing our improving trend over the last two years.

Our people are encouraged to discuss safety at every opportunity, spot unsafe behaviour and take ownership to stop it, and to report and resolve unsafe conditions, and we plan to renew our focus on this in the year ahead.  Our lost time injury frequency rate showed a slight deterioration to 0.23 lost time injuries per 100,000 hours worked for the year ended 31 March 2022 (31 March 2021: 0.12).  This gives us extra incentive to ensure we are delivering on our plans so that the intended outcomes can be realised.

Dividends

No equity dividends were paid during the year from our regulated business (2021: £nil). No dividends were paid from the non-appointed business in the year (2021: £1.0m to service group debt).

In 2021/22, Affinity Water Limited spent 82p of every £1 of customers’ money on our suppliers for services, our assets, and our people (2021: 79p), ensuring customers receive the highest quality water and service. None of our customers’ money was spent on dividends or interest on shareholder debt.

Our dividend policy allows a dividend from the non-appointed business to service any group debt above Affinity Water Limited before a distribution to shareholders is considered. The dividend policy was revised during the year allowing further dividends from the non-appointed business subject to the company’s economic gearing being below that of its internal business plan, and reducing the base dividend for the appointed business from 5% to 4%.

Our shareholders are re-investing dividends to enable the substantial investments to improve resilience and protect the environment. In determining the level of dividend, the financial performance of the appointed and non-appointed businesses is considered separately.

Click here to view Affinity Water Limited’s Annual Report and Financial Statements for the year ended 31 March 2021 on our Stakeholder website: www.affinitywater.co.uk/library

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