Chairman's statement on our half year performance for 2020-21
An extremely challenging and unprecedented time for our Company, customers and employees.
I am pleased to present the interim results for SES Water for the six months ended 30 September 2020. It has been an extremely challenging and unprecedented time for our Company, customers and employees, similar to all companies in the UK. Specific developments in key areas of focus for us are:
Our promises to customers
- Our top priority in the response to COVID-19 has always been to put the health and wellbeing of our employees and customers first, while striving to do the right thing and continue to supply high quality water all day, every day
- Taking COVID-19 challenges into consideration we have made good progress delivering the first six months of our ambitious Business Plan for 2020 to 2025 (known as AMP 7)
- During the COVID-19 lockdowns, we have increased the amount of water we are pumping around the network to meet the significant rise in household consumption
- We continue to make improvements to our overall customer service performance across a broad range of measures. In our first year being measured against C-MeX (Ofwat’s sector-wide indicator of customer satisfaction) we are confident this positive trend will continue
- Our unwavering focus on vulnerable customers means nearly 18,000 people are now benefitting from our Water Support Scheme bill discount – surpassing our annual target by more than 5,000 and already meeting our target for the second year of AMP 7
- We continue to roll out innovative new technology, such as intelligent networks and smart meters, which will help improve our knowledge of our pipe network and reduce leakage and consumption
Planning for the future
- Despite the challenges presented by COVID-19 this year, our capital investment programme has continued, including progressing the upgrade of our Elmer Treatment Works and connecting a key strategic trunk main between Blindley Heath and Outwood Reservoir. This will result in securing the water supply for 80,000 customers by connecting them to more than one Water Treatment Works and increasing the resilience of our network by enabling large water transfers from Bough Beech Reservoir
- As part of Water Resources South East (WRSE) we are working with the other south east water companies to plan regional water resources for the long term and identify the appropriate level of abstraction across the region
- Reducing the demand for water by cutting leakage and the amount of water people use is an essential part of building long-term resilience and protecting the environment. To support this, we have started rolling out a programme to ensure at least 90% of our customers are billed via a water meter by 2025
Being a responsible business
- Following our payment holiday scheme set-up quickly in response to COVID-19, we have launched ‘Breathing Space’, a permanent support scheme for customers who are facing life changes that have affected their income and who need some time to adjust
- We have opened a new, state of-the-art education centre at our Bough Beech Reservoir and Treatment Works. This will help us continue delivering our very successful education programme which started more than 20 years ago
- We have increased the amount of funding we award to local charities, groups and projects, through the Community Foundation for Surrey, now in our second year of partnership. We were also the first local company to make a donation to the Surrey Coronavirus Response Fund
- We have fully rolled out our five-year trial of 12 electric vehicles and continue to contribute to the industry’s commitment to achieve net zero carbon emissions by 2030
- We have continued our focus on the wellbeing of all our employees, including setting up a COVID-19 wellbeing committee, and are also progressing the actions of a third-party review of our health and safety management system
- We have set up a voluntary Environmental Scrutiny Panel (ESP) populated by independent members with specific expertise in environmental matters. The aim is to help the Company, through constructive challenge and knowledge sharing, to meet and accelerate our environmental ambitions in AMP 7 and beyond.
Finance and governance
- Profit after tax has decreased this half year to £1.7m, primarily due to lower volumes of water consumption from businesses due to the COVID-19 lockdown. In addition, operational spend has increased in the six months to 30 September 2020 as higher household demand results in a larger volume of electricity consumed to provide water across our network
- Capex spend for the six months to 30 September 2020 is £10.7m, lower than targeted amounts due to the first lockdown restrictions on construction activity
- To ensure the ongoing long-term financial resilience of the Company, we completed the extension of our five-year revolving credit facility in May 2020 to a limit of £50.0 million, up from £35.0 million last year
Performance commitments
During the first six months of the financial year ending 31 March 2021 we have made solid progress delivering the first year of our Business Plan for 2020 to 2025. While the COVID-19 pandemic clearly continues to present the water industry with challenges along the way, I am pleased to say that we remain focused on achieving our targets and delivering the commitments we have made to our customers.
Our customers’ top priority remains a reliable supply of water and we have worked hard to keep the number of burst mains as low as possible. It is pleasing to see the number of mains repairs we have needed to make so far this year is well within the allowed limits and demonstrates the continued resilience of our network.
Meanwhile, significant focus has been placed on rolling out our ‘intelligent’ network to monitor the health of our pipes and detect potential leaks earlier, and we remain committed to being the first UK water company to have an entirely ‘smart’ network of pipes. This will help us revolutionise how we detect and prevent water leaks - either with our mains or our customers’ pipes – as soon as it occurs. In the future it could even enable us to predict and prevent pipeline failures before they happen.
However, having set ourselves stretching targets for the current five-year regulatory period, there are some key areas where we have not met our performance targets so far this year:
- Due to more people being at home this year, water usage by our domestic customers has increased significantly, exacerbated during the summer hot spells when we were distributing record volumes across our network. This coupled with a reduction in meter installs due to COVID-19 restrictions, had a significant impact on our per capita consumption performance (PCC) target and means we will be very unlikely to achieve our target by the end of the year
- A recent water sample failure for benzo(a)pyrene from a drinking water tap at a commercial property in Redhill is currently being assessed by the Drinking Water Inspectorate (DWI). While we have completed a thorough investigation - and the issue was not reflective of a water quality concern in the wider network - we will have to await the outcome of the DWI assessment to accurately determine whether we will meet our overall water quality performance target for the year
- Throughout the pandemic we have still been undertaking customer-side leakage and installing meters, albeit at reduced levels due to the pandemic. Unfortunately, COVID-19 has had a disproportionate effect on leakage figures across the industry and, as such, our performance has been impacted. There is currently an industry-wide study taking place to quantify the impact of COVID-19 on both leakage and PCC. It is expected the study will provide some practical guidelines for how we can make adjustments to our models in order to correct the errors that COVID-19 related changes to demand patterns has introduced. In the meantime further lockdowns nationally and locally will only add to the uncertainty around our leakage calculations
- For supply interruptions we remain slightly off target for the year due to a few significant burst events during the summer which exceeded three hours for the properties affected
- To date we are marginally above our allowed limit for taste, odour and discolouration (TOD) contacts from customers but we are still leading the industry in this area
- Due to the planned capital investment essential maintenance programme at Elmer Treatment Works and operational issues at two of our other treatment works, we have had to temporarily stop softening the water from these sites for periods of time, which has impacted our performance against our target in this area
- Despite significantly increasing the number of customers in receipt of financial help with their bill, we need to further increase awareness of our vulnerable support schemes
Customer service
We continue to operate our C-MeX customer service improvement programme and have put a number of measures in place to improve our performance in this area.
In the year to date we are currently positioned 14th (out of 18) in the C-MeX industry league table, rising from 15th in quarter one. Furthermore, for the customer satisfaction element of the C-MeX indicator, we were the most improved company against last quarter. The Board recognises there is still a lot of work to be done to improve the Company’s customer service performance, which is why significant investment has been put into both people and technology. We are confident the continued recruitment of customer experience specialists, combined with the roll-out of a new billing and customer management system in the coming months, will help us deliver the service our customers deserve.
Meanwhile we continue to promote our support services in response to COVID-19 and have recently launched a re-branded campaign in the form of ‘Here For You’ - our collection of financial support schemes and priority services. This forms part of our plan to raise awareness of the services on offer. As part of this collection we have also launched ‘Breathing Space’, a new support scheme which aims to help our customers who need to pause their payments for a little while to get back on their feet. For those customers facing life changes that have affected their income, we will offer them a one, two or three month pause in payments, depending on their situation.
Our initial payment holiday scheme proved to be a much-needed option for many customers at the start of the COVID-19 pandemic and I was pleased to note that more than 96% of customers who have received this help and other support on our Priority Services Register think the support has been helpful.
When it comes to offering value for money to our customers, 7% believe their bill is not good value. We will continue to work at improving our communication to better explain the services we perform, and community support we provide, for an average of 50p a day.
For the first time we are being measured against the proportion of customers we provide a resolution to on the first time of contacting us. I’m pleased to report that we are performing better so far this year, despite dealing with more complex contacts owing to the impact of COVID-19 on our customers’ ability to manage their bills.
Water resources and demand
While we have just experienced above average rainfall in October 2020, overall rainfall throughout the summer (April to September) was below the long-term average and this, coupled with higher demand, has caused our water resources to be slightly below average. However, with wet and cool weather conditions more likely as we head into the winter months, we expect our reservoir and groundwater stores to refill to normal levels and are likely to see demand at forecast or below forecast levels. As always, we have been regularly liaising with other water companies in the region to discuss any emerging risks and will continue to monitor the situation carefully.
Due to the COVID-19 pandemic, domestic consumption of water has been much higher than previous years, as more people have spent more time at home and, in turn, used more water. This, coupled with some particularly dry and hot spells during the summer months, significantly increased demand and means we are unfortunately unlikely to achieve our PCC target this year. Despite this, we have put in place a number of measures to help us reduce demand.
Firstly, as COVID-19 has restricted our ability to carry out home water efficiency visits in person, we have become the first water company to partner with Save Water Save Money and provide virtual home water saving checks. The GetWaterFit calculator, which is hosted on our website, allows customers to calculate their household’s water use before having the option to book a free online consultation with a GetWaterFit plumber. They will then be able to advise the customer on any leak repair activity or water saving devices that may need to be fitted. To date we have received over 650 registrations to the platform and expect this to increase further in the coming months.
Despite the lockdown restrictions this year, we have been able to continue meter installs, albeit at a reduced level and have now fitted over 36,000 since 2015. On average, switching to a meter reduces water use by 15% making them a key tool in bringing down consumption. More than 60% of our customers are now on meters and our focus now turns to switching at least 90% of our remaining customers onto measured charges by 2025 to bring us in line with other water companies in the south east. We have started a pilot programme with Raven Housing Trust to install 4,500 meters and switch all of their tenants to metered charges by April 2021.
Elsewhere we have continued to support national water saving campaigns, such as ‘Water’s Worth Saving’, which was run throughout the summer months by Water UK and Waterwise in collaboration with all UK water companies. As part of our ongoing ‘Every Drop Counts’ campaign we have also extended our community fund for local charities, allotments and horticultural groups to apply for funding towards making their sites more water efficient.
Community engagement
While COVID-19 has significantly impacted our education programme this year due to schools being closed during lockdown, we have taken the opportunity to launch a new website called ‘Flow Zone’. The site, which has received nearly 3,000 visits since launch earlier this year, provides educational games and activities for families to learn more about the importance of water, climate change and biodiversity. It has proven a useful resource for students to learn from home and we fully intend to retain the site as a key part of our education programme going forward.
We have also opened the doors to a brand new, state-of-the-art education centre at our Bough Beech Reservoir and Treatment Works. More than double the size of our previous centre, the new facility offers a range of interactive activities and displays for visitors to learn about the water cycle, climate change and the importance of saving water. We were pleased to be able to host a number of school visits there prior to the second national lockdown and the feedback from visitors was very positive.
Now in our second year of partnership with the Community Foundation for Surrey, we have recently awarded a further round of grants from our community fund to three charities who provide vital services for local people and disadvantaged individuals.
These charities are Abigail’s Footsteps, which provides baby bereavement counselling, Active Prospects, which provides assistive technology to people with learning disabilities or autism and Volunteer It Yourself, which provides training and education for disadvantaged young people.
Head of Operations at Abigail’s Footsteps, Faye Hill, said: “Thanks to the SES Water fund we have extended our baby loss counselling programme into Surrey. With their help we can now support 12 families who have experienced a late miscarriage, stillbirth or neonatal death by delivering over 80 individual sessions. The outcome we want to see from this programme is for all bereaved families to receive specialist bereavement support designed specifically for them from qualified experts. This in turn will ensure a more cohesive family unit where all family members can support each other.”
Health, safety and wellbeing
The health and safety of our employees, contractors and members of the public remains a key priority for the Board. There has been one lost-time accident since April which needed to be logged under the Reporting of Injuries, Diseases, and Dangerous Occurrences Regulations (RIDDOR) as the employee was off work for longer than seven days. This incident has since been fully investigated and measures put in place to prevent a reoccurrence. Any accident is one too many and we continue to examine the root causes to minimise the risk of them happening again.
To further help reduce this risk we issued ‘Stop Works’ cards to all our site staff in June as part of our Health and Safety Month. The cards give our staff the authority to stop work or refuse to carry out work if they believe an activity or task being conducted is unsafe. Each of our staff members has also been provided with access to a suite of online training sessions, with topics including manual handling in the workplace.
Further focus has been placed on reporting Potential Hazard Early Warnings (PHEW) and a company-wide campaign has recently taken place to encourage our employees to report any hazards they believe need to be addressed, as soon as they spot them. In total, 23 PHEWs have been reported since April, all of which have since been fully investigated and resolved.
We have recently relaunched our Safety Committee as the ‘Health, Safety and Wellbeing Committee’. This reports directly to the Board and is attended by representatives from across the business to discuss and consider initiatives aligned with our ongoing Aqualibrium wellbeing programme. The programme is in place to provide support services for our employees ranging from health screenings to confidential crisis support and counselling. During lockdown we also set-up a COVID-19 wellbeing committee to provide a forum for staff to discuss any concerns or worries they may have, given that many of our staff are currently working remotely.
Back in June we invested in providing our employees with the opportunity to use the ‘Headspace’ app, which is a research-backed desktop and mobile meditation app to help you re-group. We had a very good take-up from staff with users finding the additional support helpful.
Our people
Our people are our greatest asset and their commitment and determination to deliver a consistently high level of service for our customers can always be counted on.
This is why it is important we continue to invest in our workforce and provide them with the training and support they need to develop their skills and progress in their careers. Increased training opportunities have been provided for staff this year, including online sessions via training partner iHasco. This has been received well, especially when many of our staff are working remotely due to the lockdown restrictions.
We are also proud to have supported several of our staff upskilling through the national Apprenticeship Levy this year, with courses completed including: Customer Services, Leadership & Management, Project Management and other technical areas.
While it is essential to support our existing workforce, it is also important we are able to recruit the strongest candidates to join our team. To help with this we launched a new recruitment website portal and process back in May and have since filled more than 25 roles in key areas across the business.
As a company we are committed to ensuring everything we do adheres to our values. Diversity, equality and inclusion should be the way we do things at all levels, from recruitment through to how we communicate with one another and contribute to our community. We have recently established a Diversity & Inclusion working group to review our existing Equality Policy and ensure all the qualities of a diverse and inclusive workforce are realised and promoted.
Governance, financing and organisational changes
In order to help us deliver our Business Plan over the next five years and achieve our performance commitments it is important we continue to recruit the right people. We have been strengthening our team at all levels across the business and, most recently, we have welcomed two new appointments to our leadership team – John Gilbert as Chief Information Officer and Kate Thornton as Chief Customer Officer. Both John and Kate bring significant experience and capability from other sectors and we are very pleased to have them on board.
Financial performance
The first six months to 30 September 2020 saw revenue reduce by 14% (£5.3m) to £32.1m (2019: £36.5m). This was mainly driven by the reduction in volume of wholesale water due to the impact the national lockdown had on business retailers. Operating costs increased by 1% (£0.2m) in the year to £26.0m (2019: £25.7m) mainly due to higher run rates of network maintenance spend and increased volumes of electricity consumed.
Other operating income increased by £2.1m to £2.2m (2019: £0.1m) due to the sale of a property and monies received for insurance receipts relating to a chemical spill at Elmer water treatment works that occurred in 2017.
Despite the one-offs seen in other operating income, operating profit has decreased by 31% to £7.4m (2019: £10.8m) due to the impact that COVID-19 has had on turnover and increased operating costs. The impact of COVID-19 has also been noted in the reduction in volume of wholesale water sold to business retailers. In addition, based upon the latest cash collection rates seen within the region, a c5% increase (£0.3m) to the bad debt provision has been made within the half year accounts.
Net financing costs have remained at a similar level of £5.4m (2019: £5.4m). In 2019 one-off set-up costs of our renewed revolving credit facility were incurred.
Reflecting the decrease in profits, the tax charge decreased by 65% to £0.4m (2019: £1.3m) mainly due to the decrease in profit before tax noted above. The tax charge is equivalent to 20% of profit before tax. Profit after tax reduced by 61% to £1.7m (2019: £4.2m).
Net cash from operating activities of £10.9m decreased from prior year (2019: £18.9m) due to the reduced revenues driven by the impact of COVID-19 and the increased costs noted above. Net cash from investing activities of £8.6m reduced from prior year (2019: £13.9m) due to the delays seen in the capital programme as a result of the first national lockdown across our mains renewal and metering programmes. Net cash from financing activities reduced to £3.0m outflow of cash (2019: £1.2m inflow). In 2020 no drawdown on the Company’s revolving credit facility has been made.
Read our financial results in full
Read 'Keeping it Clear 2020' - a guide to how we are owned, run and financed
Interim dividend
While the Board considered that an interim dividend related to 2019/20 could be declared and paid (after its consideration of our performance across a number of factors including service to customers, compliance with statutory obligations, as well as financial performance against regulatory assumptions and internal targets), given the current significant economic uncertainty due to COVID-19, the interim dividend has been deferred and will be considered for payment at the 10 February 2021 Board meeting.
Capital investment
In the first six months of this year we have invested £10.7m (2019: £15.2m) in our capital programme. This included £2.8m at our Elmer Water Treatment Works to re-develop and upgrade the site and a further £2.0m increasing the resilience of our other water treatment works and pumping stations. Other spend included £2.7m renewing and increasing the resilience of our network including providing new connections for housing developments, £0.7m on our customer metering programme and £1.0m on our new billing software due to go live this financial year. The remaining £1.6m was spent on other IT improvements, new vehicles and building upgrades.
Regulatory developments
Four water companies have not accepted Ofwat’s Final Determinations on their business plans for 2020 to 2025 and instead asked for them to be referred to the Competition and Markets Authority (CMA) for review. The CMA published its provisional findings in September and while we accepted our Final Determination, we will continue to monitor the outcome of these referrals for implications for the wider industry.
Ofwat and Water UK are working together to increase their understanding of how COVID-19 is impacting the water sector, how the sector can best respond and the potential impact on stakeholders. A working group has been formed comprising of representatives from Ofwat, Water UK and selected water companies and we will continue to monitor the outputs and insights from this group.
As a Board and Company, we have taken seriously the concerns raised by Ofwat regarding our recent interactions with the retail markets and are working to ensure improved support for business retailers and housing development services. This support includes improved daily interaction with retailers, enhanced reporting and monitoring of policies, and improvements to information made available to our housing development services customers such as the transparency and access of charging information on our website.
Risks and uncertainties
The global COVID-19 pandemic continues to significantly impact the country on a number of levels, which we and the rest of the water industry have also been affected by. The health and safety of our employees and customers remains our number one priority and there are a number of mitigating actions that we have taken, and continue to take, to manage the impact while taking care to abide by the latest Government advice throughout.
When lockdown was first announced back in March 2020, we were quick to de-mobilise our workforce in accordance with the Government guidance and since then senior management have held meetings three times each week to discuss and assess the latest situation, both on a national and local level. These regular meetings have ensured we have been able to plan effectively and remain flexible to mitigate any risk. Various Company representatives have also been involved in the numerous industry working groups, ensuring our voice is being heard at a national level.
Meanwhile the prospect of a no-deal Brexit conclusion to the transition period on 1 January 2021 is increasing, and with it the possibility of border delays at Channel ports. We are revisiting our contingency plans around building and maintaining chemical and certain stock inventory to maximum levels.
Future challenges
Our primary challenge remains ensuring that we perform as strongly as possible during the first year of this five-year regulatory period to ensure we meet the commitments we have made to our customers.
While we continue to adapt and meet the challenges presented by COVID-19, longer term risks are emerging from this pandemic, including the resilience of our supply chain, impact on revenues, stepping up activity to get back on track with our performance commitments and impacts on long-term financial resilience.
Despite this, we continue to invest in our workforce, technology and customers, which is vital to support the evolution of our Company. With the continued determination, hard work and dedication shown by our employees, which I’m very thankful for, there is no doubt we can rise to the challenges before us and provide our customers with the best possible service.
Jeremy Pelczer
Chairman
30 November 2020
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