Boards Overview by liwenting

VIEWS: 22 PAGES: 19

									SWT                                 JUNE RETURN 2003


BOARD’S OVERVIEW


Chapter 1 Key Outputs and Service Delivery – (Tables A and B)

Chapter 2 Expenditure and Financial Performance Measures - (Table C)

Chapter 3 Key Supporting Information - (Tables D and E)

Chapter 4 Efficiencies

Chapter 5 Competition

Confidentiality

Board Endorsement




Page: 1
Date Stamp: 13 April 2010      Time Stamp: 11:47
SWT                                      JUNE RETURN 2003



BOARD OVERVIEW

With the Foot and Mouth crisis at an end, the 2002/03 reporting year saw a sharp
improvement in the delivery of quality outputs. Mains rehabilitation activity was up by
81% and 110 NEP waste water schemes were successfully delivered.

Drinking water quality and bathing water compliance both achieved 'best ever' results,
whilst leakage levels achieved were again inside the Ofwat target.

The loss in momentum of sewage treatment works improvements, arising from Foot
and Mouth impacts on sludge management and related activities, that resulted in poor
waste water treatment performance, has now been recovered with a major initiative to
improve waste water compliance. This has resulted in substantial recent performance
improvements, although too late to be reflected in JR03 reports.

Successful implementation of the new RAPID customer management system is already
delivering benefits.




Page: 2
Date Stamp: 13 April 2010          Time Stamp: 11:47
SWT                                      JUNE RETURN 2003




CHAPTER 1

WATER SERVICE - KEY OUTPUTS AND SERVICE DELIVERY


Drinking water quality

Total drinking water quality compliance will be confirmed in the DWI Chief Inspector‟s
report for 2002 as 99.92%. This represents a continuing level of high performance and
a further increase from 99.88% in 2001.

The Company‟s performance on the DWI‟s Operational Performance Index has
improved again to 99.69% from 99.50% in 2001.

Leakage

For the fourth year running, we have met or exceeded our target of restricting overall
leakage levels to less than 84 Ml/day.

Analysis undertaken at JR01 showed that the economic level of leakage was likely to
be significantly higher than that already being achieved.

DG2 – water pressure

Only 0.04% of properties are below the reference level, for the third year running. This
represents a ten-fold improvement since 1997/98.


DG3 – supply interruptions

Overall performance on unplanned interruptions improved noticeably from 0.49% last
year to 0.39% in the reporting year. This has resulted from the Company‟s continuing
programme of replacement of asbestos cement and other poor quality mains, with over
£1m spent in 2002/03.




Page: 3
Date Stamp: 13 April 2010          Time Stamp: 11:47
SWT                                      JUNE RETURN 2003


Mains rehabilitation

There was an 81% increase in mains rehabilitation outputs in 2002 compared to 2001,
with 390km of mains being renewed or relined. This investment area was significantly
under-funded in the 1999 Determination by some 30%. We are continuing to focus on
delivering milestone compliance dates agreed with the DWI to maximise outputs.

DG6 - billing contacts

Despite more than one million billing contacts in the year, a 13% increase in the
number of contacts on the previous year, all queries were dealt with within 5 working
days.

DG7 - written complaints

A high level of performance was maintained with 99.97% of written complaints dealt
with within 10 days.

DG8 - bills for metered customers

Performance was at 99.85%, despite a 13% increase in the number of metered
accounts

This is an exceptionally high standard of performance in the South West region which
has a high proportion of holiday homes, where access is consequently difficult to
arrange.

DG9 – telephone contacts

The implementation of Phase 1 of the new RAPID billing system had some snagging
problems which contributed to a 24% increase in telephone contacts. DG9
performance achieved was still 94.1% of calls answered within 30 seconds, a reduction
from 95.1% in 2001/02. Performance in the current year will meet the levels achieved
in previous years.




Page: 4
Date Stamp: 13 April 2010           Time Stamp: 11:47
SWT                                      JUNE RETURN 2003




SEWERAGE SERVICE - KEY OUTPUTS AND SERVICE DELIVERY

Bathing water compliance

The Company has 30% of the country‟s bathing beaches, but only 3% of the resident
population.

The Environment Agency‟s report “Bathing Water Quality in England and Wales 2002”
confirmed that the Region‟s bathing waters and beaches were cleaner than they have
ever been before. In 2002, 137 beaches out of 140 passed imperative standards,
which is 98% mandatory compliance and a record 118 beaches (84%) also passed the
tighter Guideline compliance standard.

A record 108 beaches were recommended in „The Good Beach Guide‟, published this
year by the Marine Conservation Society. This was 16 more beaches than last year.

River water quality

Devon and Cornwall has more miles of high quality rivers than any other region in
England. Since 1989, we have improved treatment standards at over 250 waste water
treatment works, greatly improving the quality of treated waste water entering the
region‟s rivers. This has provided a major contribution to the improvement in river water
quality.

Continuous discharges & waste water compliance

Major schemes were completed during the year at Taw/Torridge (Cornborough) and
Dartmouth, with a further 109,000 population equivalent served by sewage treatment
works improved during the year.

In total, 27 continuous discharge schemes in the National Environment Programme
(NEP) were delivered in 2002/03, adding to the 29 schemes completed in 2000/01 and
2001/02.

The Company now has UV treatment at 42 works, serving 43% of the Region‟s
population.



Page: 5
Date Stamp: 13 April 2010         Time Stamp: 11:47
SWT                                      JUNE RETURN 2003


The total equivalent population served by NEP sewage treatment works improvements
is 542,000 (38% of the connected population).

Waste Water Compliance

South West Water has put in place a robust waste water compliance review and
management process to deliver significantly improved compliance by the end of 2003.
This year‟s compliance reporting is showing a 25% reduction in sample compliance
failures, and is on target to meet the proposed compliance profile presented to OFWAT
in October 2002, following their review of the Company‟s compliance performance of
previous years. The key objective was and is to target 0% population equivalent served
by failing sanitary works, to further improve on the UV 99% rule compliance (we are
already the most significantly improved company in this area) and to further improve on
UWWTD BOD lookup table compliance.

Intermittent discharges

The Company has completed a further 83 intermittent discharge schemes on the NEP
list, reducing the total of unsatisfactory discharges requiring improvement from 231 to
148 of the original 306.


DG5 – properties at risk of flooding

As at 31 March 2003 there were 50 properties at risk of flooding twice in 10 years and
196 at risk once in 10 years. In total, the Company‟s „at risk‟ register represented
0.04% of connected properties, compared to a figure of 0.07 % nationally.

We removed 37 properties from the DG5 „At Risk‟ Register in the reporting year, but
added 39 new properties. Our DG5 „At Risk‟ Register only has properties that have
actually flooded; there may therefore continue to be additions to the Register due to the
statistical distribution of rainfall events based on a 1 in 10 year rainfall event.

HEALTH AND SAFETY

We recognise that efficiencies come from maintaining and improving on our excellent
Health and Safety progress. The Company is recognised as a leader in Health and
Safety strategy and helps to plan and manage key Government campaigns. Currently,
the two core UK Health and Safety initiatives are "Revitalising Health and Safety" and


Page: 6
Date Stamp: 13 April 2010          Time Stamp: 11:47
SWT                                     JUNE RETURN 2003


"Securing Health Together". SWW is one of only 2 UK companies cited favourably in
the "Revitalising" document, and one of only 4 UK companies referred to in the
"Securing Health Together" publication as illustrating good practice. South West
Water‟s Chief Executive is also Programme Director for Clear Water 2010, an industry
wide initiative for improving occupational health.

Water UK's 'Water Ahead' health and safety business plan was prepared by SWW on
behalf of Water UK. Water Ahead adopts South West Water‟s health and safety
principles in their entirety. It should be noted that Health and Safety information is
shared freely between all members of Water UK, and is not an area of competition
between water companies.

In 2002/03 we continued the downward trend in our accident frequency rate, achieving
a rate for all lost-time accidents of 17 per 1000 employed (compared to an average for
UK industry of 27 accidents per 1000 employed ). The last five years are shown in the
table below (note that the accident frequency in 1991/92 was 136 per 1000 employed.

 South West Water                 1998/99    1999/00   2000/01    2001/02    2002/03
 Accidents per 1000 employed        35         15        25         19          17

The dramatic reduction in accidents achieved since privatisation has contributed to
ongoing savings. Verified savings of £8,048k have been made since 1991/92, with
savings last year of £931k compared to this baseline year.




Page: 7
Date Stamp: 13 April 2010         Time Stamp: 11:47
SWT                                     JUNE RETURN 2003



CHAPTER 2 - FINANCIAL PERFORMANCE MEASURES

Turnover
Appointed business turnover for the year increased by 3.7% to £262.3m. Turnover
from main water and sewerage charges, including large user revenues, was £257.9m
(2001 £247.8m).

The effect of meter option switchers was to reduce turnover by £5.0m, £0.7m more than
in 2002.

Operating Costs
Total Appointed business operating costs, including depreciation, rose from £149.2m to
£155.6m. Operating efficiencies of £4.5m made a strong contribution to offsetting
additional costs, mainly arising from increased depreciation and operating costs from
new and improved works (£7.4m).

Operating costs, before depreciation, were £96.2m (2002 £93.0m), an increase of
£1.2m after inflation.

Profit

Historic cost operating profit was £107.2m (2002 £104.6m).

Net interest payable increased to £44.4m (2002 £40.1m), reflecting higher borrowings
to fund the capital expenditure programme.

Net profit before taxation amounted to £63.4m (2002 £65.0m).

The Appointed business's taxation position results in a credit to mainstream corporation
tax of £2.0m (2002 charge of £2.1m) for the year. This position reflects the continuing
capital allowances generated by the capital expenditure programme and the continuing
benefits delivered from the policy of disclaiming capital allowances in order to utilise
surplus advance corporation tax.

A discounted provision for deferred tax has been made resulting in a charge of £17.0m
in the year (2001/02 £2.0m).



Page: 8
Date Stamp: 13 April 2010         Time Stamp: 11:47
SWT                                      JUNE RETURN 2003



Dividends and retained profit

Dividends totalling £72.7m (2002 £66.7m) were declared to the parent undertaking, in
line with the Price Determination.

The Company has established a dividend policy, which involves the following
components:

     - a sustainable level of base dividend growth, determined by a number of factors
       including the shareholder‟s investment and the cost of capital.
     - a further level of growth funded by efficiency out-performance.
     - consistency with the assumptions made by Ofwat in setting prices for the K3
       period.

Dividend payments are designed to ensure that key financial ratios are not prejudiced
and that the ability of the Appointee to finance its Appointed Business is not impaired.
A deficit of £24.3m (2002 £5.8m) was transferred from reserves after charging the
interim dividend.

Cash Flow

Net cash inflow from operating activities increased to £171.0m (2002 £157.1m), mainly
as a result of the cash impact of the increase in operating profit and working capital
reductions.

After allowing for financing costs, the increase in cash in the year was £19.3m (2002
decrease of £25.1m)

Financial Ratios
                                                              01/02         02/03
                                                              Restated*

Historic cost dividend cover                                  0.9           0.7
Current cost dividend cover                                   0.9           0.9
Gearing                                                       44.5%         48.9%

* Gearing for 2001/02 has been restated to reflect an adjustment to retained profit



Page: 9
Date Stamp: 13 April 2010          Time Stamp: 11:47
SWT                                       JUNE RETURN 2003




Financial needs and resources
Significant funding facilities exist for both the medium and long term by way of finance
leasing, loans from the European Investment Bank and a Bond, issued by South West
Water Plc. In addition, short term facilities exist with a range of financial institutions.

Loans and finance lease obligations amounted to £1109m (2002 £942m). Current
asset investments of £177m (2002 £173m) were held at the Balance Sheet date. Total
facilities in place at 31 March 2003 but not utilised totalled £160m (2002 (£160m).
These resources form part of the funding strategy put in place to finance the future
investment expenditure needs of the Company.

The Directors confirm that the Company can meet its short term requirements
from existing facilities without breaching covenants or other borrowing
restrictions.




Page: 10
Date Stamp: 13 April 2010           Time Stamp: 11:47
SWT                                       JUNE RETURN 2003



CHAPTER 3

WATER SERVICE - KEY SUPPORTING INFORMATION

Meter options performance against OFWAT 2001 interim determination

We have continued to experience very high levels of meter switching, with 21,955 free
meter optants, 3.5% of our domestic customers, in the reporting year. This number is
slightly below last year‟s number, but early indications are that this year‟s total will be
higher than last year‟s, following very high demand for meters in the first two months of
this financial year.

Cryptosporidium compliance

In spite of the rural nature of the South West, and high impact of agriculture in the
Region, there have been no failures of the cryptosporidium standard

Lead compliance

Phosphate dosing is now operational at 18 water treatment works after the installation
of dosing facilities at 17 sites in the reporting year.

Water distribution iron compliance

The Company is continuing to improve serviceability to customers, and iron compliance
results demonstrate the positive effect of the water mains rehabilitation programme.
This indicator, and several other related measures, have improved over successive
years, as shown by the DWI‟s Operational Performance Index:

                                         1998       1999        2000       2001      2002
DWI Operational Performance              99.13      99.36       99.47      99.50     99.69
Index (OPI)
Number of tests failing for Iron          102         86         75          59         29




Page: 11
Date Stamp: 13 April 2010            Time Stamp: 11:47
SWT                                     JUNE RETURN 2003


Burst mains

The further reduction in burst mains resulted from the Company‟s continuing
programme of replacement of asbestos cement and other poor quality mains, with over
£1m spent in 2002/03.

Guaranteed standards of service

As many of these payments as possible are made automatically, without the need for
the customer to claim payment.

The Security and Emergency Measures Direction

Our commitment to protect customers and the environment under the Security and
Emergency Measures Direction has once again been certified by the DEFRA approved
external auditor. Government requirements are getting tougher and we are meeting that
challenge in order to protect the regional economy, customers, visitors and employees.

Water efficiency measures

The Company has continued to deliver a high profile water efficiency strategy. Some
50,000 people visited our „Waterwise Roadshow‟ during the report year.

The Company has been working on several initiatives in partnership with the Eden
Project. These include giving advice on the rainwater harvesting being used in the
project and making the public aware of these initiatives.

SEWERAGE SERVICE - KEY SUPPORTING INFORMATION

Drainage area planning

The programme of Drainage Area Study (DAS) maintenance and new DAS work is
underway, driven by the need to understand the maintenance requirements of our
sewerage systems. This programme was initially focused on areas where intermittent
discharges required improvements, and has now moved on to larger catchments
(>5000 population).




Page: 12
Date Stamp: 13 April 2010         Time Stamp: 11:47
SWT                                      JUNE RETURN 2003


Sludge strategy

The Company has further developed its sludge strategy in the year, and is now well
placed for compliance with HACCP regulations, in advance of the legal requirement to
do so.

The Company has no significant alternative, at present, to the disposal of sludge to
agriculture, and is therefore committed to the agriculture outlet. The uncertainty over
future legislation and disposal alternatives has led to the Company continuing to review
and modify its sludge strategy, resulting in the changes to the proportions going to
different disposal routes since last year.

Odours at sewage treatment works

The Company has responded to the Government‟s consultation on odours at sewage
treatment works. Our preference is for a Code of Practice approach to the issue.
Odour problems are mainly caused by saline infiltration to sewers which affect many of
the Region‟s coastal and estuarial settlements.

Sewerage serviceability and rehabilitation strategy

The objective of the Company‟s Sewerage Serviceability and Rehabilitation Strategy,
implementation started in April 2002, is to develop a programme of sewer cleansing
and rehabilitation to improve sewer serviceability. In particular, improving sewer
network performance in terms of sewer floodings and collapses is targeted.

The methodology used is to identify and study problem areas on the sewer network,
from available Company data on sewer related problems and asset information (e.g.
collapses, floodings, low gradients). Then sewer cleansing and rehabilitation will be
targeted on these sewers, by prioritising activities, to give the most cost effective
outputs. Following the start of this programme in 2002/03, the programme of work is
being increased for the current year.

SUSTAINABLE PROCUREMENT

The Company is a leader in sustainable procurement with the development of its
Vendor Environmental Management System. This has been recognised with a „Green
Apple Award‟ from The Green Organisation in 2002. We have also played a leading
role, with the Environment Agency, in the Achilles Environmental Group incorporating


Page: 13
Date Stamp: 13 April 2010         Time Stamp: 11:47
SWT                                      JUNE RETURN 2003


environmental good practice into the Achilles Utilities Vendor Database, the industry
standard supplier registration system.

„Sustainable procurement‟ has also been used by British Water and others to apply to
procurement good practice through sustainable supplier relationships. The Company
has an established reputation in this area based on developments over more than 10
years. Since the early 1990s, all supplier framework agreements have been conducted
on non-adversarial terms, supporting sustainable relationships through a mutual
commitment to continuous improvement. The Company has also led the industry in the
effective implementation of partnering arrangements for construction contracts and has
contributed to Partnership Sourcing Limited (PSL) as a Steering Group member and
follows the „Better Payment Practice Code‟. This has been supported by the
Company‟s Contractor Management training programme.

We have provided constructive feedback to British Water in the development of their
„Guide to Sustainable Procurement‟, and are happy to recognise and support this
initiative.

CORPORATE GOVERNANCE

All of the Company‟s key risks have been allocated to a „risk owner‟ on the Executive
Management Team and a „risk manager‟ from among the senior management group.
All risks have been ranked on the basis of consequences and likelihood, with
appropriate contingency plans in place for each risk. A formal system of review is in
place which requires monitoring of risks, with quarterly formal confirmation of the status
of each risk to the Board.

CUSTOMER COMMUNICATIONS

South West Water is the first water company to provide an on-line customer research
facility on its customer service web site. Waterlevel, the twice-yearly customer
newspaper, delivered to all households by the Royal Mail, is being well received by
customers, as shown by the increase in the number of positive contacts - particularly in
terms of water conservation product sales following publicity in the latest edition
published in March. Company staff have also continued to give talks to many external
groups on company services and the extensive on-going improvements programme.




Page: 14
Date Stamp: 13 April 2010          Time Stamp: 11:47
SWT                                       JUNE RETURN 2003



CHAPTER 4 - EFFICIENCIES

Operating costs

Operating efficiency savings totalling £4.5m were achieved in the reporting year,
making a strong contribution to offsetting the additional costs resulting from inflation
and the operation of new capital schemes. Significant savings were achieved in
manpower costs, together with continuing price and volume reductions in the use of
materials, contractors and energy consumption.

Capital costs

Our capital efficiency targets for K3 are primarily programme based, rather than being
related to specific scheme completions. We shall therefore only be in a position to
confirm the full extent of efficiencies achieved when the principal investment
programmes are nearing completion.

For major waste water schemes completed, or near completion, so far in K3, we have
identified savings of £22m. The level of capital efficiencies is expected to increase over
the next two years.

Echo South West Ltd

In February 2002 the Company launched a new joint venture, based at Peninsula Park
Exeter, with Echo Managed Services (a wholly owned subsidiary of South Staffordshire
Group Plc).

Echo South West Ltd has completed its first full year in business and has achieved
considerable success during this time, whilst contributing to the Company‟s operational
efficiencies. As well as managing the South West Water billing, collection and contact
management activities, Echo were instrumental in the implementation of the new
Customer Management System (Rapid).

In addition, Echo has been successful in securing a number of new contact
management contracts within the greater South West.




Page: 15
Date Stamp: 13 April 2010           Time Stamp: 11:47
SWT                                     JUNE RETURN 2003


Customer management system

During the last year the Company implemented the first phase of its new billing,
collection and contact management system – Rapid - to replace the existing legacy
system. The “Go Live” process was completed as planned and by the end of
November the new Rapid system was in use across the business. Making the system
operational required interfaces to be built with many other Company systems, such as
our work management system, as well as configuring Rapid, and transferring customer
records from the legacy system.

From the first day of operation the new system was producing measured and
unmeasured bills and is used for logging customer contacts. Our annual unmeasured
billing run for 2003 was completed on the new systems with some 450,000 bills being
printed and despatched to customers.

Procurement efficiencies

The Company has continued with its „Rightsourcing‟ strategy considering the balance of
activities that should be carried out internally with those best provided by an external
service provider. The most notable development during 2002/3 was the first full year of
operation of the Echo South West joint venture referred to above. The Company‟s
laboratory operations also benefited from a tender review against external service
providers confirming the efficiency of the internal operation and renewing the focus on
industry best practice. Other changes included a re-engineering of our material
logistics supply chain through direct integration with our two water distribution
contracting partners, and the insourcing of our transport fleet administration. Both
initiatives have delivered cost reduction and service level improvement benefits.

The Procurement function continues to deliver substantial benefits on both revenue and
capital cost through new project initiatives as well as the „continuous improvement‟
benefits through the relationship management approach to existing suppliers referred to
in Chapter 3 „Sustainable Procurement‟. This is supported by on-going systems
development recognised in 2002 with the award of third place in the Utilities Industry
Awards IT category for our e-procurement web developments.

Energy efficiency

The focus on energy efficiency continues to be led by the Energy Strategy Group
chaired by the Operations Director. Significant developments during 2002/3 include:


Page: 16
Date Stamp: 13 April 2010         Time Stamp: 11:47
SWT                                      JUNE RETURN 2003



      Renegotiation of our supply agreement with Innogy for major sites to use their
       Cogen supply. This provides environmental benefit as well as some cost benefit
       relating to Climate Change Levy.
      One to Five benchmarking of South West Water‟s energy management with a 4
       star rating and the best score achieved to date by any UK company.
      Further work on pump efficiency testing and improvements.
      Completion of energy health checks at our top 40 sites.
      The implementation of an Energy Awareness training programme for Operations
       Managers and Supervisors

ISO 9001

The Company achieved ISO 9001:2000 registration covering all areas of potable water
supply quality (source to tap) in April 2003.

Human Resources

A new Oracle HR data system has been introduced during 2002/03 to better facilitate
the efficient utilisation of human resources, enabling greater outputs from our loyal and
competent workforce. This has facilitated the introduction of a more systematic
approach to recruitment and selection, delivering efficiencies in management time and
improving the likelihood of more effective and successful recruitment.

The Company has extended its range of family friendly policies, to allow flexible working
arrangements.




Page: 17
Date Stamp: 13 April 2010          Time Stamp: 11:47
SWT                                    JUNE RETURN 2003



CHAPTER 5 - COMPETITION

A revised and improved network access code was issued during the year, including
indicative pricing for each element of the clean water service. No enquiries were
received from potential new entrants.

In accordance with Ofwat guidance, a Self-Lay policy document was prepared. There
has been some interest expressed by muti-utility service companies regarding
opportunities in this area.




Page: 18
Date Stamp: 13 April 2010        Time Stamp: 11:47
SWT                                    JUNE RETURN 2003



Confidentiality

We consider that Tables 6a, 30, 31, 32a, 35a, 35b, 36a, 36b, and 39 in the Return
should be classified as confidential, as disclosure of their data and the respective
commentaries to third parties would be prejudicial to South West Water‟s interests. We
request that they should remain as Commercial-in-Confidence within the „Information
Capture System‟ and should be excluded from the versions of the Return in the public
domain.


Board Endorsement

The contents of this overview are endorsed by the Board of South West Water Ltd.




R J Baty

Chief Executive

11 June 2003




Page: 19
Date Stamp: 13 April 2010        Time Stamp: 11:47

								
To top