Affinity Water’s profit before tax has fallen to £46 million from £60 million in 2015, while revenue rose to £303 million from £296 million in the same period, according to its financial results for the year ended 31 March 2016, the first year of AMP6.
Operating costs for the year increased by £26.3 million (12.5%) to £237.5 million (2015: £211.2 million).
Capital expenditure in the year was £83.7 million (2015: £88.8 million), and occurred principally in Affinity’s mains renewal, sustainability reduction and lead pipe replacement AMP6 programmes, as well as on undertaking trials and design work with a view to establishing a treatment solution for the pesticide, metaldehyde, at its North Mymms and Iver water treatment works. This excluded £19.5 million (2015: £19.0 million) of infrastructure renewals expenditure, which is treated as an operating cost.
In aggregate, asset-related expenditure for the year was lower than the amount for 2015/16 allowed in the firm’s AMP6 Business Plan - primarily due to a slower than anticipated start to the metering programme and delays in technology selection for water quality projects. Programmes of work are expected to accelerate in 2016/17, in particular for increased meter coverage associated with Affinity’s water saving programme.
The water company invested over £103 million in enhancing and maintaining infrastructure and assets in 2015/16, including an extensive programme of mains cleaning on Romney Marsh. The project was part of a two stage plan to minimise the build up of sediment in the future - Affinity first invested £4m to upgrade its Denge water treatment works and followed this up with the cleaning programme, which related to mains pipes serving around 8,700 properties in the area.
Key achievements during the period included:
- 30,000 meters installed under a water saving programme
- Redesigned its largest river intake pumping system to use 20% less electricity
- Recorded its best ever water quality performance for 2015, 99.99% mean zonal compliance
- Strengthened the reliance of the network, reducing mains bursts by 9%
- Achieved a stretching regulatory leakage target, reducing leakage by 2 million litres per day - 2015/16 performance is the best level yet.
In January Affinity reorganised the business into three distinct operating units:
Wholesale – responsible for water abstraction, treatment and distribution
Affinity is now focused on being in the top half of companies within the water sector in terms of overall SIM score. The firm is also in the process of moving away from traditional supplier relationships, through partnering towards alliancing.
Retail Household
Affinity said it has made progress towards becoming a much more customer centric business during 2015/16. The water company has set up a new Customer Engagement and Operational Excellence team to deliver an improved service offering to customers.
Retail Non-household
Affinity has made a strong commitment to participate in the competitive retail market from April 2017 - plans for Retail Non-household are focused on implementing the systems and processes it needs to operate effectively in the market.
In terms of SIM score, affinity has moved up to 13th position out of 18 companies in the final qualitative SIM survey of 2015/16, compared to 16th position at the end of the second quarter of the year. Affinity said its target for next year is to build upon this momentum and achieve a second quartile position for SIM overall.
However, the water company has incurred a £1,637.550 penalty as the result of a failure to meet one of its Outcome Delivery Incentive performance commitments. I n the first six months of 2015/16 response to a number of incidents was slow and repair was prioritised over the restoration of supplies. This resulted in the failure to meet the 2015/16 target, with over 90% of unplanned interruptions to supply over 12 hours in 2015/16 occurring during this six month period.
As a result of the failure, the penalty through the ODI regime will be realised as part of the upcoming PR19 price review. Affinity said its approach to reducing unplanned interruptions has now been re-focussed on prevention, restoring supplies and fixing the problem quickly. The firm has also acquired new high volume emergency pumping equipment and said it is improving processes and competencies to reduce the impact on customers in the event of bursts.
The following are among the principle risks flagged up as rising in the report:
Unavailability of resources (people and materials) – The report says this risk has continued to increase during the year with ongoing significant construction activity around London, including construction of the Thames Tideway Tunnel now underway, reducing contractor availability.
Information security or privacy failure – The report says that as the use of online communications, cloud-based technology and the sophistication of hackers continues to increase, so too does the risk of cyber attack.
Adverse changes to the regulatory framework - The report says that changes to the regulatory framework by Ofwat or the government could have an adverse effect on its operational or financial performance.The risk has increased in the year, as a result of Ofwat’s launch of “Towards Water 2020” inJuly 2015 and a consultation in December 2015 on its preferred approach to the design of the future regulatory framework for the water industry for the next price review.
Being required to undertake unremunerated activity – Affinity said it is incurring greater costs on delivery of the Market Reform programme than allowed for in the AMP6 price controls.
Failure to prepare for market reform – the report says the requirements for implementing the retail market for non-household customers on 1 April 2017 are developed but not finalised. Delays to the Open Water Programme could affect preparation, which may lead to additional costs, loss of revenue and regulatory enforcement action. This risk has heightened during the year, as the market entry assurance requirements have become known and there have been delays to the Open Water Programme.
Commenting on the results, Chief Executive Simon Cocks said:
“I am really proud of the team at Affinity Water and I am delighted that we have made a strong start in the first year of our ambitious five year plan for our customers and communities.”
“When I look back at our performance for 2015/16, the first year of our five year Business Plan, I recognise that there is more to do in the coming years to deliver on all our commitments, but this is a reflection of the genuinely stretching targets we have set ourselves. “
Attendees at next month’s National Civils Show, Floodex, National Drainage Show and Waterways Management on 26th and 27th November are set to benefit from an expert speaker line-up and the opportunity to visit a wide range of exhibitors all co-located in one place at Excel, London, one of the UK’s leading international exhibition and convention centres.
Tackling leakage is one of the fastest and most cost-effective ways for utilities to bolster water security, writes Ben Crabtree, Product Line Director, Ovarro, revealing how the potential of smart technologies is being demonstrated around the world.
UK-headquartered South Staffordshire Plc, the integrated services group operating within the UK critical infrastructure and essential services markets, has received a prestigious Royal Society for the Prevention of Accidents (RoSPA) Award for global health and safety excellence.
Balfour Beatty, the UK’s largest construction and infrastructure provider, has delivered exceptional environmental results on the Thames Estuary Asset Management 2100 (TEAM2100) framework, one of the nation’s most ambitious flood defence initiatives.
Hear how United Utilities is accelerating its investment to reduce spills from storm overflows across the Northwest.
Find out more about the remarkable career opportunities on offer at WSP - scroll down to watch the inspirational video. 
What is to be done about the UK’s failing utilities? Listen to Professor Dieter Helm explore the options to tackle the UK’s failing utilities – Thames Water, the Royal Mail and Network Rail in particular.