Northumbrian Water Group has published its latest annual results for the year ended 31 March 2010. The company said the Group was in a good position to continue to maintain sound financial performance, with funding in place to meet its operational and capital investment requirements through to the end of 2011.

Profit on ordinary activities before tax for the year was £170.2 million, 11% higher than the previous year (2009: £152.7 million).

Revenue for the Group increased 1.5 per cent to £704.7 million - mainly due to a 3.0% inflationary increase in water and sewerage charges allowed by Ofwat. However, the increase was partially offset by reductions in demand for both services. In particular, non-household revenue has been affected by the economic downturn including closures by a number of major customers on Teesside.

Operating costs increased by £8.4 million (2%) to £428.9 million, principally reflecting the impact of increases in salaries, abstraction and rates plus one-off charges for bad debt relating to the closure of a major customer (£1.7 million) and a provision for early retirement and severance costs (£5.7 million). The increases have been partially offset by efficiencies, including the benefit of reduced power prices and the commissioning of the advanced anaerobic digestion plant at Bran Sands on Teesside during the year.

Energy costs down

Energy costs at NWL for the year to 31 March 2010 were £36.4 million (2009: £38.8 million) and are expected to reduce by around £4 million for the following year - reflecting the full year impact of the Bran Sands advanced digestion plant and lower commodity prices. The company said:

“These savings will be sustained as NWL has now procured its entire electricity requirement through to March 2015 at prices below the level funded in the final determination.”

£92 million AMP4 investment overrrun

Capital investment in the regulated business for the year was £207.6 million (2009: £228.9 million). Investment for the five year AMP4 period has exceeded the funding allowed in the 2004 final determination by £92 million, as outperformance on the quality programme has been more than offset by increased investment on capital maintenance. This includes £64 million investment in Northumbrian’s new sludge strategy, including the Bran Sands advanced digestion plant, and additional investment in response to extensive sewer flooding in recent years.

Change in emphasis in AMP5

The company said its AMP5 £1.2 billion investment programme would see a change in emphasis away from achieving new quality standards to maintaining the high standards already achieved. It would also be working to tackle the challenges posed by climate change, reducing its operational carbon emissions and improving the resilience of its assets. Last year NWL agreed a plan to reduce carbon emissions by 35% by 2020, compared with a 2008 baseline. The company said that if the emissions associated with electricity production also fell, in line with Government predictions, this should mean that its emissions would be halved by the 2020 milestone date.

NWL also intends to increase the emphasis given to catchment management across its operating areas and will increase the number of staff dedicated to promoting catchment management solutions.

Work started in January 2010 on increasing the capacity of Abberton Reservoir near Colchester by 58%. The one remaining part of the overall Abberton Scheme that requires permissions is the variation of abstraction licences at Denver and Blackdyke in Norfolk. Once the scheme is operating in 2014, NWL do not expect to have to develop further major resources in Essex for the next 25 years.

The advanced anaerobic digestion plant at Bran Sands is now fully operational and generating the expected volumes of biogas and electricity. NWL has now successfully implemented a re-organisation to operate the plant at much lower manning levels than previously. Plans to provide a similar plant on Tyneside to process the remainder of the company’s sludge, and also replace older technology, are also progressing.

New Chief Executive Officer Heidi Mottram said

The Group has financing in place to cover all its requirements through to the end of 2011. We have accepted the outcome of the price review for the period to March 2015 and have begun the programme of delivering the agreed outputs and increasing our already high standards of customer service. There is a sound base from which to create more efficient operations.”