Affinity Water has flagged up pressures placed on contractor availability by the forthcoming construction of  Thames Water’s Tideway Tunnel and potential delay in the opening of the competitive market in 2017 as among its principle business risks.

The comments come in the water company’s Annual Report and Financial Statements for the year ended 31 March 2015 published today.

Affinity Water said it relies on the availability of contractor resources to maintain service levels and implement its investment plans and that in the event of these being unavailable, it could experience significant disruption to its service.

The utility, which supplies water to around 1.5 million homes and businesses in southeast England, said the risk has increased during the year with more construction activity around London and the planned construction of the Thames Tideway Tunnel reducing contractor availability.

On the opening of the retail market for non-household customers on 1 April 2017, Affinity said the requirements for implementing the Open Water programme are still being developed. The water company warned that delays to the Programme could affect its own preparation which could in turn lead to additional costs, loss of revenue and regulatory enforcement action, commenting:

“This risk has heightened during the year, as initial market preparations have not progressed as quickly as anticipated.”

On financial results, Affinity Water posted a net profit of £93.3 million on revenues of £291 million for 2014/15, up £9 million from £84.4 million in the previous year, while profit after tax was £33 million.

Gross capital expenditure in the appointed regulated business for the year was £114.5 million (£94.0 million on capital maintenance and infrastructure renewals, £20.5 million on capital enhancement) compared to £113.5 million in 2014.

The water company also saw a 2% reduction in operating costs for the year of £3 million – down to £132.9 million compared with £135.9 million in 2014. Affinity said it had reduced the unit cost of pipe renewal by re-examining its procurement and design processes - an efficiency saving which meant the estimate of annual expenditure required to maintain the network was reduced by £11 million, reflected in the higher net operating profit.

Commenting on efficiency savings of £0.9 million, the firm said these were primarily derived from renegotiating supplier contracts on more favourable terms, increasing the productivity of teams and existing supplier contracts, pumping system and source optimisation, and reducing customer contact through digital engagement.

Projects that progressed during the year included increasing the resilience of assets through enhancing flood protection and security at operational sites, and continuing with work already done in AMP5 on leakage detection and repair.

Looking to AMP6, Affinity Water is aiming to install over 300,000 meters by 2020. Over the next five years, the company has also committed to reducing the amount of water it takes from the environment by 42 million litres per day - aaround 5% of its resource base.  The water company said a primary challenge for the business at an operational level was adapting to the reduction in abstraction from a number of its groundwater sources in order to improve flows and habitats in local chalk streams. Affinity estimates that around a third of total network leakage occurs from customers’ supply pipes and that metering customers might allow the leaks to be more readily identified, potentially saving millions of litres of water every day

Affinity Water’s Chairman, Dr Philip Nolan, was pleased to report the company had made significant improvements to its business during AMP5, despite the 2009 price determination being a challenging one.

 He said:

“Since 2010, we have been focused on driving up service levels whilst at the same time realising £26 million in operating cost net efficiencies. This has resulted in lower bills and a better service for customers. Between April 2010 and March 2015, we invested over £460 million enhancing and maintaining our extensive network of assets to prevent failure and secure a resilient supply.”

“The improvements that we have made provided a strong foundation for our Price Review 2014 (PR14) Business Plan. This helped us to deliver a plan that Ofwat had confidence in. In April 2014, Ofwat announced that we were one of only two companies to achieve enhanced status for our Business Plan. In February 2015 we accepted Ofwat’s final determination of price controls. Being awarded enhanced status has enabled us to undertake early, detailed planning and preparation for AMP6.”