Whilst rainfall in the North West of England is greater than other parts of the country, and thus supply is not as constrained, it is still in everyone's interest to make the most of this precious resource. We have encouraged customers to use water more efficiently and have increased the number of households fitted with meters. We also have a regulatory annual leakage target, based on the sustainable economic level of leakage, which we aim to meet each year.
We own over 55,000 hectares of land around our reservoirs. Our sustainable catchment management programme (SCAMP) has shown that we can effectively manage these catchments to protect and enhance water quality and to provide other benefits such as an improved natural environment. Our new Catchment Wise project is looking at working with others to improve the lakes, rivers and coastal waters where we return wastewater to benefit the natural environment of the North West.
As well as water and our catchment land, another key resource is waste. Sludge from wastewater can be processed to generate renewable energy, helping to save power costs and protect the environment. Our advanced digestion facility at Davyhulme is one of the largest works of its type in the world and in 2016 we began injection of biogas from Davyhulme's wastewater treatment into the national gas network. We also recycle waste by supplying treated biosolids to agriculture, which provides a valuable resource to farmers.
In order to utilise these key natural resources to create value for our business, our 'Instrument of Appointment' or Licence is integral. This was granted to us as part of the privatisation of the water industry in 1989.
What we do – our water cycle
We collect water from the environment, clean it and distribute it to our customers before collecting it, treating it, and then returning it back to the environment.
Our employees play a critical role in increasing long-term value generation. Fundamental to the decisions we take and operational performance we deliver is a skilled, engaged and motivated team.
We place a strong emphasis on providing comprehensive training and development opportunities to develop our existing employees, improving our internal skill-base as well as providing a more engaged workforce. By enhancing our understanding of best business practices in other companies and sectors around the world and bringing this learning back to our business we have increased our organisational knowledge and capability, which has been integral to developing our 'systems thinking' approach to operating our business. Our award-winning apprentice scheme, coupled with our graduate recruitment programme, is helping to ensure we can continue to attract and train up a high calibre of engineers, in a profession which has seen declining numbers in the UK in recent years.
All of our employees are paid at least the Living Wage as defined by Living Wage Foundation and independent studies have shown that this enhances the quality of work of staff, increases staff retention, reduces absenteeism as well as providing societal benefits. Management has a range of incentives which focus on performance over a number of years, rather than just the current year, to encourage the delivery of benefits over the longer term.
Our policies on maternity, paternity, adoption, personal and special leave go beyond the minimum required by law. For disabled applicants and existing employees, we are committed to fulfilling our obligations in accordance with the relevant legislation. Applicants with disabilities are given equal consideration in the application process. Disabled colleagues have equipment and working practices modified for them as far as possible and wherever it is safe and practical to do so. We also have procedures and policies in place to ensure we act in accordance with the Universal Declaration of Human Rights.
We value diversity, providing equality of opportunity and recruiting and promoting on merit, which we believe provides the benefits of a more comprehensive and balanced skills-set. Despite being a highly engineering-based organisation, women are represented at all levels of our company, with one-third of our combined board and executive team being female, as the charts show below.
The health and safety of our employees is fundamental, most importantly to the welfare of our employees but also to the reputation and performance of our company. This continues to be a significant area of focus as we strive for continuous improvement. We have implemented a number of initiatives over recent years which have helped to reduce the employee accident frequency rate, as detailed on the Our performance 2015/16 page.
Our suppliers and contractors provide us with essential services which we rely on to deliver our strategy and we work with those whose business principles, conduct and standards align with our own. Our key suppliers have committed to our Sustainable Supply Chain Charter, further supporting the delivery of these benefits. It is fair to say that our suppliers are contributing significantly towards our c£9 billion forecast contribution to the regional economy over the 2015–20 period.
Maintaining a good relationship with our key stakeholders such as our suppliers, investors, regulators and customers is vital for the success of our business. For example, on large capital projects we work closely with our suppliers and by maintaining a good relationship and working towards the same goals we can help ensure the delivery of projects on time, to budget and with minimum customer impact. Maintaining regular contact and positive relations with investors may help encourage them to buy or retain our shares or finance our future capital programmes. Engagement with regulators may help positively influence future policy. Our stakeholder relationships are influenced by our reputation and so we try to ensure our strong values and performance are accurately portrayed externally.
* Figures exclude CEO and CFO, who are included in group board figures.
There are 13 male (81 per cent) and 3 female (19 per cent) employees who are appointed as statutory directors of subsidiary group companies but who do not fulfil the Companies Act 2006 definition of 'senior managers'.
Our fixed assets (including all our reservoirs, treatment works and pipes) have a gross replacement cost of around £90 billion which is the estimated amount it would cost for another company to build similar assets and networks. However, it is not the replacement cost of our assets upon which we are allowed to earn a return, through our revenues. We earn a return on our regulatory capital value (RCV), a regulatory measure of the value of our capital base, which is currently just over £10 billion, so it is this asset value which is more important economically.
Many of our assets are long-term in nature – for example, our impounding reservoirs have a useful economic life of around 200 years. By carefully reviewing our potential capital projects, considering the most efficient long-term solutions, we can save future operating costs, also helping to reduce future customer bills and contributing to being able to operate in a more sustainable manner. It is also important that we have the right systems and procedures in place in order to monitor and control the assets efficiently and effectively within our network. Embracing innovation in our asset configuration and work processes can help to make our future service better, faster or cheaper.
Since privatisation in 1989, total capital investment of over £15 billion has provided substantial benefits to our customers and our region's environment as well as contributing to the North West economy through job creation, both within our company and in our supply chain. Disciplined investment, along with RPI inflation, also grows our RCV, increasing future revenues.
We expect to invest around £3.5 billion across 2015–20 and to continue with a substantial investment programme for the foreseeable future in order to meet more stringent environmental standards from the European Union and to maintain and improve the current standards of our assets and services. When deciding on our investment strategy we have to be mindful of the impact on our customers' bills and this is why, for example, we are spreading some of the environmental spend required by European legislation over the next 15 years.
Pictured above: The European Investment Bank is our largest lender with over £2.0 billion of debt and undrawn facilities, including a new £250 million loan signed in April 2016.
We aim to maintain a robust and responsible capital structure, balancing both equity and debt to achieve a strong investment grade credit rating. Our proactive equity and credit investor programmes allow us to engage effectively with investors. Issuing new debt is particularly important as our capital investment is largely financed through a mix of debt and cash generated from our operations. We maintain access to a broad range of sources of finance in a number of markets across which best relative value is sought when issuing new debt.
Locking in long-term debt at good relative value can help keep our finance costs low and enables us potentially to outperform the industry-allowed cost of debt. Sustained low-cost finance across the industry benefits customer bills. The average life of our term debt is around 20 years. Our prudent financial risk management policies covering credit, liquidity, interest rate, inflation and currency risk help reduce the group's exposure to the economic and regulatory environment.
Pictured above:Stakeholder manager Steve Wong, alongside our new outfall pipe in Blackpool. The 2,000 tonne, one kilometre long pipe acts as a release valve when the sewer system reaches its maximum capacity when, for example, there is extremely heavy rainfall. The new pipe, which took a week to arrive in Blackpool from Norway, is part of our £125 million investment programme along the Fylde coast to improve the existing sewer network.
Investing in resilient services
Any provider of essential utility services, such as water, has to be prepared for 'shocks' to the system, such as extreme weather events. Responsible service providers prepare on two fronts – first they invest in their assets so, as far as possible, they continue to provide services to customers when the shocks occur but, secondly, if those services are interrupted, robust contingency plans exist to restore normal operation as soon as possible.
This approach has characterised the company's planning for resilience and is illustrated by specific investment projects from AMP5. For example, between 2010 and 2015, 30 cross-connections linking parts of the water network together were installed to give greater flexibility to move water around. At a larger scale, the £150 million West-East pipeline between Manchester and Liverpool was completed, allowing water from Wales to supply Manchester and supplies from the Lake District to reach Liverpool, further integrating the water network to improve its resilience.
This planning has extended to water quality. As well as supplying Manchester, the Haweswater aqueduct delivers water to places such as Accrington and Burnley. Ultraviolet equipment has been installed where these supplies are taken, improving treatment capability and reducing the risk of water quality problems such as cryptosporidium. When raw water quality, sourced from reservoirs, boreholes and rivers, is affected in some way, we have piloted new operational practices to ensure that when the water treatment works first starts up again, this water does not enter the distribution network.
As we moved from AMP5 to AMP6, we opened the new 'digital' brain of our operation, the Integrated Control Centre (the ICC, pictured below). As well as delivering customer service benefits, the capabilities now available in the ICC help us provide more resilient services. For example, we can now better manage the movement of water supplies across the region, balancing where that water is available with the lowest cost of providing that water, ensuring we balance our stocks and keep pressure off customer bills.
Investment in asset resilience will continue to 2020 and beyond. We will invest in excess of £15 million to protect water quality within our service reservoirs. The pilot at water treatment works, to better manage water when works first start up, will be extended across the region. In Cumbria, our £300 million project to link the west of the county to the regional supply network, scheduled for completion in 2022, will provide more resilient supplies to over 150,000 people.
As we begin planning for the AMP7 investment period, from 2020 to 2025, our approach will remain unchanged as planning to deliver a resilient service is embedded in what we do. Maintenance work is planned on the Haweswater aqueduct following its first inspection in over 50 years in 2013. In addition, we will continue to build climate change projections into our wastewater modelling and water resource management plans to understand better possible future 'shocks'. Once a comprehensive review of the resilience of our assets is complete, which takes into account the experiences of the 2015 winter floods, we will develop the next iteration of our asset resilience programme.