ANNUAL REPORT 2017 - South Staffordshire

1 ANNUAL REPORT 20172 Front cover and aboveSeedy Mill UV Treatment Plant projectSouth Staffs Water, supported by its partners including SSI Services, completed the installation of one of the UK s largest UV clean water treatment plants at Seedy Mill Treatment wet contact tanks were converted into two dry chambers, each housing two UV reactors. The project was completed to schedule whilst still ensuring that Seedy Mill remained operational, with all water leaving the site now being treated by details about this project can be found in the Strategic REPORT on pages 13 and to South Staffordshire Plc sAnnual REPORT 2017 Group Highlights 4 Strategic REPORT 6 Executive SummarySouth Staffs WaterSSI ServicesEchoCorporate Social ResponsibilityFinancial ReviewGovernance 44 Board of Directors and Executive TeamDirectors ReportCorporate governance REPORT and Committee ReviewsDirectors Responsibilities StatementStatutory Accounts 58 Independent Auditor s ReportConsolidated Profit & Loss AccountConsolidated Balance SheetCompany Balance SheetConsolidated Statement of Changes in EquityCompany Statement of Changes in EquityConsolidated Statement of Comprehensive

2 IncomeConsolidated Cash Flow StatementNotes to the Consolidated Cash Flow StatementNotes to the Financial StatementsContact Details 884 ANNUAL REPORT 2017 Group HighlightsAward winning collaboration to install UV plant at Seedy Mill Treatment WorksEcho s RapidXtra supports 8 water companies in retail market openingContinued high performance by South Staffs Water in Interruptions to Supply measureNo RIDDOR accidents5 Group Highlights Strategic REPORT governance Statutory Accounts Contact DetailsEcho shortlisted for 19 Industry awards, winning fourAll Group Health and Safety targets again met or exceededDisappointing performance on complaints in South Staffs WaterOver 60k raised for WaterAidStrong organic growth across SSI ServicesTurnover increased by to 248m6 ANNUAL REPORT 2017 Strategic ReportExecutive SummaryGroup overview, strategy and business modelSouth Staffordshire Plc is a highly respected integrated services group of businesses.

3 The Group includes a regulated water supply company, South Staffs Water, comprising two operational regions, South Staffs and Cambridge, and also two non-regulated service divisions, SSI Services and Group s strategy remains to continue to grow by providing high levels of service quality, while remaining price competitive in all of its operations, through driving continuing business improvement and operational efficiency, as well as maintaining a safe and enjoyable working environment. Details of how this strategy is implemented across the Group and the individual divisional strategies, business models and plans are provided throughout the Strategic Staffs WaterSouth Staffs Water has again achieved good performance against most of its Outcome Delivery Incentives, with pleasing results in water quality, interruptions to supply, encouraging and enhancing biodiversity, as well as providing support for customers in debt.

4 There was also the successful completion of a significant investment in a water quality enhancing UV plant at one of its main treatment business has, however, encountered some disappointments during the year, particularly in its Service Incentive Mechanism (SIM) score the water industry customer service measure. Efforts to drive efficiency to ensure that customers continue to experience great service at a fair price have had an unfortunate impact on the overall customer experience, in this period resulting in an increase in complaints. South Staffs Water is making significant efforts to reverse this, the benefits of which can already be seen so far in the 2017/18 year, with improvements in the SIM score the year, preparations for the launch of the Non-Household retail market were a key area of focus for the business.

5 A readiness program was delivered, to ensure that our operations were in place for the 1 April 2017 go live ; when South Staffs Water exited the Non-Household retail market by transferring its related assets and operations to a sister company SSWB Limited. This company was then transferred to Pennon Water Services, as part of a joint venture between South Staffordshire Plc and Pennon Group Staffs Water is now working to deliver the remainder of its AMP6 commitments, as well as preparing for PR19, which demands a level of innovation, flexibility and responsiveness not previously seen in the water the year, Echo s Rapid business has helped all of its clients, both retail and wholesale, to successfully comply with the new requirements for Non-Household retail competition, as well as interact with the market operator and compete effectively in the new environment.

6 However, whilst this was a significant success for Echo, our clients understandable focus on Non-Household retail competition led to reductions in other work for Rapid. Echo continues to monitor developments to ensure its clients remain compliant and s debt recovery solution focuses on the customer experience, and the business continues to be awarded new contracts, putting the business in a strong position within its core sector, UK business is particularly proud to have been shortlisted for 19 industry awards across a variety of customer service and debt collection award programmes, four of which it Highlights Strategic REPORT governance Statutory Accounts Contact DetailsSSI ServicesOverall, the division has experienced an encouraging year, seeing organic growth; including an increase in demand for its specialist skills and technologies, along with the successful completion of some important client projects.

7 The division is now seeing the benefits of its risk management plan and is less reliant on individual customers and the water industry five-year AMP cycle. The division s excellent Health and Safety performance saw a reduction in the All Injury Accident rate by 52%, reflecting the significance the divison, and the Group as a whole, places on Health and Mechanical and Electrical business had an excellent year, securing four new frameworks that mean the business now has twelve secured frameworks with eight major the year, a decision was taken to integrate the businesses of Onsite Specialist Maintenance, Perco and IWS s Pipeline Services into OnSite, which is intended to bring economies of scale, greater clarity surrounding the business market offering, improved customer experience and brand awareness.

8 Real benefits are expected be realised in the future, as the new structure is Services is set to continue its success and grow in the existing markets in which it operates, targeting further organic revenue growth whilst seeking further cost efficiencies, including smarter working processes and systems through continuing investment in technology. FinancialThe Group outperformed key financial targets, including challenging budgets for turnover, profitability, cash flow and net debt. Overall, Group turnover increased by in the year to , with as budgeted, EBITDA of (before infrastructure renewals - see reconciliation on page 37) remaining largely in line with the previous year. Operating profit for the year was (2016: before exceptionals). Capital investment of (2016: ) was completed in addition to investment in infrastructure renewals of (2016: ) in the always, the success of the Group could not be achieved without the hard work and dedication of our employees.

9 We thank them for their continued support and commitment to the Health and Safety of our employees is of prime importance, and we are pleased to once again REPORT that each business met, or exceeded, their targets for reduction in accidents. It is pleasing to note that no RIDDOR accidents were recorded across the Group, compared to seven during the previous year. Going forward, each business unit has been tasked with setting a business plan to achieve a minimum of 10% improvement on 2016/17 s Health and Safety , through its ability to efficiently provide high quality services at competitive prices, the Group remains in a strong position to continue its work in maximising the opportunities available to it, while preparing for the undoubted challenges Staffs WaterContinued high performance in Interruptions to SupplySuccessful completion of one of the UK s largest UV clean water treatment plantsAnnual REPORT 2017 Introduction of a new social tariff, Assure 9 Group Highlights Strategic REPORT governance Statutory Accounts Contact DetailsIn a year of challenge.

10 South Staffs Water continues its focus on providing the highest quality water, while remaining affordable, to our REPORT 2017 1011 OverviewSouth Staffs Water is a water only company, supplying around million customers in the South Staffordshire and Cambridge water industry is undergoing unprecedented transformation. With complex challenges including deregulation, environmental pressures and significant changes in the demands of the UK population the business is developing a new flexibility in how it operates that means it can respond quickly and adapt as necessary to take full advantage of the new landscape. Underpinned by significant customer engagement, the new Outcome Delivery Incentive (ODI) targets included in the plan have been designed to deliver what is important to our customers.