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Northumbrian Water Group plc Sustainability highlights 2011

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Sustainabilityhighlights

Northumbrian Water Group plc

2011

Northumbrian Water Group plc is an independent company quoted on the FTSE 250 Index of the London Stock Exchange. The Group principally works in the provision of water and waste water services.

Our visionTo be the national leader in the provision of sustainable water and waste water services.Northumbrian Water Group plc (NWG or the Company) owns a number of companies which, together with NWG, form the Group. The largest of these companies, Northumbrian Water Limited (NWL), is one of the ten regulated water and sewerage businesses in England and Wales. The emphasis given to NWL throughout this report, reflects its importance to the overall performance of the Group.

NWL operates in the north east of England, where it trades as Northumbrian Water, and in the south east of England, where it trades as Essex & Suffolk Water. Northumbrian Water currently provides water and sewerage services to 2.7 million people and Essex & Suffolk Water provides water services to 1.8 million people in a combined area of over 12,260 square kilometres.

01 Highlights02 Chief executive officer’s introduction06 Our corporate responsibility08 Our risks and uncertainties10 Our operating performance –

customer10 Putting customers first10 Affordability11 Business customers11 Leisure customers

12 Our operating performance – competitiveness

12 Research and development12 Procurement

14 Our operating performance – people

14 Code of conduct 14 Employees15 Equality and diversity15 Consultation and engagement15 Training and development16 Communication16 Health, wellbeing and safety

18 Our operating performance – environment

18 Our external environment 19 Water quality19 Water resources20 Waste water20 Carbon management 21 Climate change22 Waste and recycling 23 Biodiversity and conservation

24 Our operating performance – communities

24 Investment in our communities26 Participation in our communities26 Educating our communities about their environment26 Supporting healthy communities27 Supporting developing communities

through WaterAid

28 Sustainability at a glance

Contents

AppendicesNWG Annual Report 2011 sustainability case studiesCustomerCompetitivenessPeopleEnvironmentCommunities

PoliciesCustomerCompetitivenessPeopleEnvironmentCommunities

Key performance indicators and performance trend dataCustomerCompetitivenessPeopleEnvironmentCommunities

Case studies and additional informationCustomerCompetitivenessPeopleEnvironmentCommunities

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Highlights

Highlights

Topperformer

36,500

£4m

100%

1.11%

27.6%

89%Customer satisfaction with our overall service

5.8%Employee turnover (water industry average 9.4%)

80%Employees are proud to work for NWL

in the British Water annual procurement performance survey 2011 for the second year running

school children reached through interactive water efficiency productions and workshops

Raised for WaterAid

Sewage treatment works met their consents for the third year running. The best record in the industry

Pre-tax profit invested in our communities

Employees volunteered 7,600 hours through our ‘Just an hour’ volunteering programme

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Chief executive officer’s introd

uction

Chief executive officer’s introduction

This review highlights our business activity during my first year as CEO of NWG.

It has been a hugely enjoyable year, and also a very interesting one, as I took time to understand the business, listen to its stakeholders and employees and work with them to develop a way forward.

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Chief executive officer’s introd

uctionI joined a company which already had a good reputation and I was impressed immediately by the loyalty and commitment of the workforce. It was the start of a new five year investment period for NWL and I have taken the opportunity to couple that plan with a review of our strategy, vision and values.

NWL had previously stated its vision to ‘be the national leader in the provision of sustainable water and waste water services’, and our commitment to this is reaffirmed. We want to continue to deliver value to customers and other stakeholders by focusing on our core competencies of water and waste water management. We underpin our drive to be the best with five strategic themes containing goals and targets that, when reached, will see our vision and our values delivered. In the autumn, ‘Our Vision Our Values Our Way’ was introduced to all our employees during a series of interactive roadshows and, as a result, there is clarity and energy throughout the company which is driving the business forward.

The five themes described below are mutually supportive and achieving the right balance between them is essential to our success and reputation.

Customer focuses on delivering industry-leading customer service. Our relationship with customers is core to the success of our business and it is essential that they trust our service. Customer service is at the heart of the company and all employees have a clear focus on getting things ‘right first time every time’. Although we are required to meet regulated standards for customer service, this should not define our aspiration as the quality of our service must go beyond that.

Competitiveness will drive us to greater efficiency and, indeed, to be the most efficient water company. It is not just about driving cost down but using innovation to support our activity.

People are our greatest asset and we want to be recognised as a great company to work for with high levels of satisfaction from our employees. We will provide support and training and promote excellent employee relations.

Environment is critical to us and our stakeholders and we acknowledge our responsibilities to protect and enhance the natural environment. Our carbon management plan will help reduce our carbon footprint and we will adopt good environmental practice in all aspects of our activity.

Communities are important to us and we want to build strong relationships with the communities we serve. We will ensure that corporate responsibility is embedded in performance management and that we benchmark ourselves against the best companies.

We have agreed specific goals to help us achieve our vision against these themes, and have clear accountability for their achievement throughout the company. These are measured in a balanced scorecard which assesses our performance against key performance indicators (KPIs). This is reviewed by the Board, management team and all employees on a monthly basis.

Values

Reputation

Cus

tom

er

Co

mp

etit

iven

ess

Peo

ple

Env

iro

nmen

t

Co

mm

uni

ties

Vision

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Chief executive officer’s introd

uction I believe that clear direction and goals are key to success, but just as important is a clear sense of values, and how we do things ‘around here’. So at the same time as reviewing our vision, we have made a clear commitment to five core values.

One team – we work together consistently, promoting co-operation, to achieve our corporate objectives.

Customer focused – we aim to exceed the expectations of our external and internal customers.

Results driven – we take personal responsibility for achieving excellent business results.

Creative – we continuously strive for innovative and better ways to deliver our business.

Ethical – we are open and honest in meeting our commitments, with a responsible approach to the environment and our communities. 2010/11 The company was successful in meeting many of the targets in its balanced scorecard during the year. Out of 26 targets we improved in 18, which is a very good start. Most notable were the improvements in sewer flooding, our Service Incentive Mechanism (SIM) score for customer service as well as the reduction in the number of interruptions to supply. We were also very proud to retain our industry-leading position in sewage treatment. Our independent customer satisfaction scores still show that customers are satisfied with the service we provide as well as value for money although we were disappointed that this was not reflected at the same level in the research undertaken by the Consumer Council for Water (CCWater) this year.

The report will also focus on many highlights throughout the year but the development of our work to extend Abberton reservoir and commence our second advanced anaerobic digestion plant at Howdon, after the successful operation at Bran Sands, are particularly notable. The worst winter for over 100 years challenged our employees but they responded magnificently ensuring that no supplies were interrupted. This was a fantastic achievement and I am very proud and grateful for the commitment and hard work of so many of our employees in truly dreadful weather conditions.

The company also continued to receive external recognition for its activity. This year, Ethisphere listed NWG in its top 110 most ethical companies in the world, one of only five companies chosen in the UK. In addition, we were successful in retaining our Platinum Plus rating in Business in the Community’s (BITC) Corporate Responsibility Index for 2009/10 and awaiting re-accreditation for 2011. This recognises the impact we have on underpinning the communities in which we operate and also recognises the longstanding relationships with key industrial and commercial customers.

We continue to be actively involved in the business community in all operating areas through direct membership and involvement in the councils/boards of the Confederation of British Industry (CBI), Chambers of Commerce and other similar organisations. For my part, I have been getting involved in a number of organisations which I believe can influence the future of the company and locally I am a member of the CBI Council and have been asked to join their national Infrastructure Group. I have also joined the Government’s Green Economy Council as the water industry representative and I hope that the Council can bring a real influence to the development of policy relating to a low carbon economy.

Chief executive officer’s introduction continued

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Chief executive officer’s introd

uctionPlans for 2011/12 We look forward to publication of the Government’s White Papers on Water and the Natural Environment later this year. The former should bring greater clarity in areas such as water resource planning, metering, social tariffs and broader market reform. We have worked with the industry, through Water UK, to set out a vision of how the Government can achieve many of its objectives without legislation or with only minor legislative changes. NWL has held frequent meetings with Defra and contributed ideas on water trading and abstraction reform including a joint project (‘Trading theory for Practice’) with Anglian Water, Cambridge Water and Veolia. We remain committed to any moves that can deliver clear and demonstrable improvements for customers, other stakeholders and the wider environment.

The coming year will bring fresh challenges as we strive to achieve the goals we have set ourselves in order to attain our vision of becoming the national leader in the provision of sustainable water and waste water services. For example, under the strategic theme of environment we have pledged to keep leakage as low as possible and meet our regulatory targets. Working with our people on health and wellbeing initiatives we will sustainably reduce absence to 2.85% and in the area of communities we aim to achieve 40% of our employees participating in volunteering.

There is a strong sense of energy, commitment and accountability in the business and I am confident of further success in 2011/12.

Heidi MottramChief Executive Officer31 May 2011

Kield

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Our corp

orate responsib

ility

NWL is expected to provide a secure supply of water, a basic necessity for health, and to protect or enhance the environment when we return waste to it. Our stakeholders also expect us to:

behave fairly and responsibly; −use resources wisely; −improve quality of life; and −contribute to economic development. −

We believe that sustainability helps to improve the performance of the company and to achieve our business strategy and objectives. This is reflected in our business plan where our sustainability objectives are woven into our core business strategy. Our credentials for our work have been recognised and these are outlined on page 1. BITC has highlighted that those companies participating in their Corporate Responsibility Index outperform other FTSE 250 companies and Ethisphere also highlights out-performance for ethical companies. NWG’s share price has outperformed against the FTSE 250 over the last five years. Our customer research also highlights that customers value the work of NWL in the community and for the environment and it helps to build their trust in our work. Each aspect of the highlighted work in this report has a direct benefit to NWL, its community and its environment, such as cost saving, carbon reduction, environmental impact, skills development or leverage. Case studies throughout our annual report, for example on advanced anaerobic digestion or use of reed beds in water treatment, demonstrate the tangible business benefits such as reduced costs and power consumption.

GovernanceTo ensure that sustainability runs throughout the business, all parts of the company are involved from the Board through to all employees. Governance of our sustainability activity is led by our Corporate Responsibility Committee (CRC), a subcommittee of the NWL board. The CRC comprises non-executive directors, executive directors, the CEO (who is directly accountable to the NWL and NWG boards for both the environment and sustainable development policies) and senior managers from across the business. In addition, a CR advisory group (CRAG) acts as a critical friend, helping to validate, guide and challenge NWL’s

Our corporate responsibility

“NWG’s driving commitment to sustainability demonstrates that strong leadership and ambition can make a tangible difference to communities and the environment.” Simon Lyster, Chair, CRC.

“NWG has an open and inclusive approach to working with a wide array of external partners to develop extremely impressive social and environmental initiatives.” Norma Hope, Chair, CRAG.

In previous years, in line with many other companies, we have reported on corporate responsibility (CR) as a separate report. During the year, a review of our vision, values and strategy has given us the opportunity to truly embed sustainability throughout our business. Reflecting the importance of sustainability to our business we believe that we should report sustainability issues alongside our core business activities and we have decided to highlight sustainability areas throughout our annual report in green. This activity is extensive and it is not possible to include everything in the annual report. To facilitate more detailed reporting, key sustainability issues appear in green boxes in the annual report and are linked to this sustainability highlights document, which contains more detailed information on our responsible business practice, policies, plans, KPIs, performance trend data and case studies. Our most current sustainability information is linked to the electronic version of this document, which can be viewed at www.nwl.co.uk/aboutCR.

We recognise that this is an innovative approach and would welcome any feedback to cr@nwl.co.uk.

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sustainability strategy and activities. The CRAG is made up of senior representatives from partner organisations to reflect the key areas of our communities strategy.

The CR structure is described in the chart below. CR committee consists of non-executive directors, NWL directors and senior managers who oversee all aspects of the company’s sustainability policy, review sustainability activity, monitor company sustainability performance and consider emerging sustainability issues.

CR management group comprises NWL directors and senior managers who propose, drive, monitor and review sustainability performance across NWL.

CRAG is made up of senior representatives from partner organisations to reflect the key areas of our communities strategy.

CR groups north and south are regional groups of community and environmental employee champions drawn from across the business to ensure communication and influence is effective and widespread.

Working groups consist of specialists from across NWL who come together to investigate, advise on and drive change on specific projects such as waste and recycling, carbon management and water efficiency.

Corporate responsibilityadvisory group

Corporate responsibility committee

Northumbrian Water LimitedBoard of directors

Corporate responsibility management group

Climate change Transport

Environmental champions

Corporate responsibility group north Corporate responsibility group south

Community champions

Charity fundraising committee

WaterAid fundraising committee

Waste and recycling Energy

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Our risks and uncertainties

Our risks and uncertaintiesThe NWG Board requires all subsidiaries within the Group to identify and assess the impact of risks to their business using a standard risk model. For each risk identified, the model records the uncontrolled magnitude and likelihood of the risks occurring as well as the controls in place to mitigate those risks before assessing the controlled magnitude. The Board’s view of acceptable risk is based on a balanced view of all of the risks in the operating environment. It aims to ensure an appropriate balance between risk aversion and opportunities.

The Board sets the tone for risk management within the Group and determines the appropriate risk appetite. The Board monitors the management of fundamental risks and approves major decisions affecting the Group’s risk profile. Senior management implements policies on risk management and internal control.

For NWL, the management team reviews the approach to risk management in detail every year and the Audit Committee considers the outcome. The management team reviews the significant risks every month and a full review of the model for emerging significant risks is carried out quarterly. Any issues that arise from these management team reviews are reported by the CEO to the board.

Apart from NWL, none of the subsidiaries has risks considered to be significant to the Group’s short and long term value.

The system of internal control incorporates risk management. It encompasses a number of elements that together facilitate an effective and efficient operation, enabling the company to respond to a variety of risks. These elements include:

Policies and proceduresAttached to fundamental risks are a series of policies that underpin the internal control process. Written procedures support the policies where appropriate.

Business planning and budgetingThe business planning and budgeting process is used to set objectives, agree action plans and allocate resources. Progress against meeting business plan and budget objectives is monitored regularly.

Risk registerThe risk register identifies key risks, each with a risk owner who is responsible for evaluating the risk on a regular basis. As a way of ensuring that risk management is embedded into the business, the risk owners have the management of these risks as a personal KPI.

Strategic risk modelRisks that are known but not yet well defined enough for the likelihood and consequence to be reasonably foreseen are included in a strategic risk model.

Audit CommitteeThe Audit Committee reports to the Board on internal controls and alerts the Board to any emerging issues. In addition, the Audit Committee oversees internal audit, external audit and management, as required, in its review of internal controls.

Last year, the Audit Committee commissioned an additional risk and assurance mapping report from Ernst & Young, the objective of which was to provide NWL management and the Audit Committee with a view of the different assurance functions within the company and the extent to which they provide assurance that the control activities are operating. An assurance map now forms a permanent part of the process and, for each risk, highlights who provides assurance that the control activities are in place and operating effectively.

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Our risks and uncertainties

There are a number of risks which we consider to relate specifically to sustainability1:

Risk description Mitigation measures

Unexpected shift in climate change impact

We have processes in place to anticipate and plan for the impact of climate change. While these have long time horizons, they are reviewed regularly to ensure that any changes are identified early.

Sewer flooding failures A sewer flooding group, comprising stakeholders from various teams, is responsible for managing the process, flood reporting, network capacity studies and prioritisation of investment to reduce risk. Significant additional capital expenditure has been invested to address affected properties. The recently constructed rain radar station for the region is now operational and provides improved data. However, controls are not yet sophisticated enough to predict or prevent consequences of severe rainfall.

Pesticides lead to prescribed concentration or value failure and possible enforcement action

Undertakings have been agreed with the Drinking Water Inspectorate (DWI) to carry out certain actions to mitigate pesticide issues (metaldehyde and clopyralid). While specific treatment processes, such as carbon dosing, are undertaken at treatment works, proactive catchment management is also being carried out. This involves working with farmers, regulators and other stakeholders to advise on improved storage and application techniques for such pesticides. This is a more sustainable solution than the alternative of constructing major new treatment processes.

Incident at Bran Sands waste water treatment works causes business interruption

We have a number of contracts to treat industrial waste streams at our Bran Sands works. The liability under each contract is capped except, in certain cases, where NWL is in willful breach. A site-specific management regime is in place incorporating additional monitoring and a greater amount of standby assets.

Health and safety prosecution

Our health and safety policy and safety management system define clear arrangements and responsibilities for implementation and management throughout the Company. This is audited as part of our quality and environmental management system. Visible high level support for health and safety is provided by the Board and management team. Long term plans and targets are set to promote continuous improvement.

Note:1. This list is not exhaustive.

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Putting customers firstWe keep customers informed about our activities through leaflets with bills and our websites at www.nwl.co.uk and www.eswater.co.uk. The sites include information about our services and now allow customers to ask questions and investigate work being carried out in their area. If customers are directly affected by any work, we give advance warning and explain the need for the timing of such work. We also communicate more broadly with local communities through public meetings and customer information events.

We aim to ensure that all of our customers are able to access the information that they require. When customers need to contact us, or when we need to contact them, we cater for any special needs that they may have such as providing bills and other publications in a variety of formats or the use of British Sign Language or language interpreters. All of our employees carry identity cards, and are happy to wait outside while their identity is checked, to protect customers from bogus callers. To provide extra peace of mind customers can also register a password with us and this will be quoted by any of our employees on request. We also maintain a Special Needs Register for those people for whom an interruption to the water supply would cause particular problems. This includes people on home dialysis or who need water due to a medical condition or to take medicine.

AffordabilityWe aim to provide accurate, clear and timely bills which encourage prompt payment. Customers who deliberately avoid paying charges are actively pursued. In the current economic climate, we know that affordability continues to be a genuine concern for many customers and we continue to be considerate of their circumstances, ensuring they can choose suitable payment options and that our recovery techniques are appropriate and effective. However, customers who deliberately avoid paying charges are actively pursued and we are working closely with the Water Services Regulation Authority (Ofwat) and the Department for Environment, Food and Rural Affairs (Defra) to seek changes to legislation which will assist the industry to identify those responsible for charges more easily.

Customer service is at the heart of the company and the culture of getting things ‘right first time every time’ is embedded in the business.

CustomerOur operating performance

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The Flood and Water Management Act 2010 outlines how sewerage service providers may operate concessions for surface water drainage charges, to protect certain community groups and premises from unaffordable charges. We have decided to introduce an interim concessionary charge for the charging year 1 April 2011 to 31 March 2012 and will carry out consultation with CCWater to determine the longer term future of any concessions in the coming months.

Business customersThe economic situation has had a significant impact on some business sectors which are important in our operating regions and NWL has been working closely with major customers in those sectors to mitigate the impact where possible. NWL has always tried to work with its major customers in partnership such as our work with KP Foods. While economic conditions remain challenging, industrial demand has stabilised this year following, for example, the development of the former Artenius site by Lotte Chemical UK Limited. The agreement for the takeover of the Corus site by Sahaviriya Steel Industries should help stabilise industrial demand going forward. NWL is active in the business communities where it operates as a member of the CBI and Chambers of Commerce. By supporting these and smaller groups NWL can help business growth and development in the areas it serves as well as retaining contact with organisations which represent customers. Business customer satisfaction is also tracked on a regular basis and levels of satisfaction are high.

Leisure customersNWL continues to develop its leisure facilities at all strategic sites including investment in fishing facilities, holiday accommodation and supporting ‘access for all’. Occupancy of the log cabins at Kielder was 85% and we have 5,814 fishing members registered. The combined activity of our reservoirs rates this business the largest of its kind in the UK, with high customer satisfaction at all sites. NWL is also an active member of the Kielder Water & Forest Park Development Trust.

Kield

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Forest Park, Lakesid

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Research and developmentAs part of its competitiveness theme, NWL runs a programme of research and development linked to its operations, which includes the development of technical solutions for water and waste water management, collaborative research within the sector and partnerships with academic and research organisations and actively encourages innovation. This has supported the invention, development, trial and/or implementation of:

advanced automatic control systems for waste water −treatment process;a device for reducing flooding and pollution; −microbial fuel cells and electrochemical cells, −which, respectively, generate electricity or hydrogen from waste water;novel instruments for monitoring the quality −of waste water effluent;world’s first use of reed beds for water −treatment sludge;beneficial re-uses for water treatment sludge; −low power de-watering and thickening of water −treatment sludge;internal inspection of water distribution pipes −while in service;lining systems for extending the life expectancy −of water distribution pipes;water efficient and rapid disinfection of water mains; −novel processes for drinking water production −and waste water treatment;renewable energy production using biogas; −regeneration of brownfield land using water −treatment by-products;early warning system for leaks and bursts; and −remote pipeline condition assessment. −

During the year, the Group invested £2.3 million (2010: £2.1 million) in research and development.

Procurement NWL depends on thousands of suppliers for the provision of works, goods and services to maintain the high level of frontline services that our customers expect. The company spends millions of pounds with our suppliers every year through various long term framework agreements and call off contracts, through to the direct placing of purchase orders with suppliers and the use of purchasing cards for low-level transactional uses. Our procurement action plan continues to focus on building effective partnerships with our supply chain to identify improvement opportunities and develop innovative solutions which benefit all parties as well as society and the customers we serve. It is our policy to facilitate continuous improvement in the

Competitiveness

Our innovative research and development programme proved that reedbeds could be used for water sludge treatment – a world first for a project of this scale.

Our operating performance

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environmental and social performance of our supply chain. Key elements of the plan include:

ensuring that all business partners are treated with −fairness and transparency;focusing on areas where we have a high impact −on society or the environment, areas of high spend and products that involve a large amount of capital expenditure;reviewing the works, goods and services we procure −to ensure that they reflect a real need and that specifications include social and environmental criteria early in the process;assessing our suppliers on the basis of social and −environmental criteria, in addition to the financial ones;ensuring that all new suppliers are reviewed on their −financial, health and safety, environmental and insurance records and performance;seeking to lead and support the local and economic −development of the communities we serve and, to this end, we use local suppliers where possible;communicating our approach to our suppliers −and engage with them on how improvement can be achieved, working in partnership where appropriate; andundertake an annual review. −

It is essential that our supply chain partners both understand our approach to creating a more sustainable future and fully support our sustainable procurement agenda. It is our intention to continue to work with our suppliers, thereby making a difference together, by understanding what their sustainable business practices are, how we can learn from each other and how we can work together to strengthen their performance and share best practice.

As a result of our proactive supply chain engagement NWL continues to top the British Water annual performance survey league table of the major 12 UK water service providers. British Water is the trade association for the water industry supply chain and their annual survey is based on the views of the water industry supply chain on water industry performance including contractual approach, impact on the supply chain, professional qualities, attitude, working with partners and contractors, communication and procurement. NWL was once again the top performer with an overall average score of 7.7 in the table (an increase of 0.8 on 2010) with the next closest score being 7.3 (the average score being 6.2 and the worst 4.2). This survey enables us to benchmark our procurement performance in relation to the industry average and against other water companies.

Reed b

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Code of conduct Each company within the Group has developed its own employee policies, reflecting the framework set out in NWG’s ‘Our Code of Conduct’, the overriding principle of which is for the Group to operate in line with its values and to act ethically, lawfully and with integrity, honesty and fairness in its relationships. These policies are tailored to specific business objectives and operating environments. The Group encourages open feedback and is committed to protecting employees who wish to voice concerns about behaviour or decisions that they believe to be illegal or unethical. The Audit Committee regularly reviews the disclosure (whistleblowing) policy.

EmployeesEach company aims to recruit and retain the best people, with a diverse range of skills, experience and backgrounds, who are committed to making the company successful. In return, each company aims to provide opportunities and training for employees to develop their skills and capabilities to equip them to meet the challenges of their roles, while rewarding the contributions of both teams and individuals. The CEO, has responsibility at Board level for human resources issues. The human resources director, Sarah Salter, reports directly to the CEO.

Throughout the Group we employ 3,031 people, as set out below:

Group business unit

Average number of

employees %

NWL 2,875 95 Water and waste water contracts 132 4 Other 24 1

Total employees 3,031 100

NWG ensures its terms and conditions both attract and retain the best people in the areas it serves. NWL employee turnover is relatively low at 5.8%, below the UK water industry average of 9.4%.

The active involvement and engagement of everyone across the business is an important part of delivering performance and NWL continues to seek the views of employees through an annual employee engagement survey. This year’s survey had the largest response rate ever, at 75%, and the feedback covered working life, training, communications, managers and the company. All employees were invited to workshops to consider the results and identify areas for improvement in their

People

“Youth and lack of experience hindered me getting a job but now, thanks to NWL’s Prince’s Trust Get into Water programme, I’m employed full time and also a Prince’s Trust ambassador and Essex Young Achiever of the Year.” Chris Loftus, leakage assistant.

Our operating performance

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working practices and environment, the outputs contributing to the development of departmental action plans. In addition, 80% of respondents told us they are proud to work for the company, 81% would recommend working for the company and 77% believe that NWL is a great organisation to work for.

For the first time NWL took part in the Sunday Times Best Companies survey and achieved ‘one to watch’ status, an excellent achievement on first time entry.

NWL employees also have access to a scheme which provides a wide range of benefits including tax efficient benefits such as childcare vouchers, water services, cars for personal use and discounted store vouchers. Currently 73% of employees participate in the scheme, up from 72% last year.

Equality and diversityThe Group operates an equal opportunity policy designed to ensure that no job applicant or employee receives less favourable treatment on the grounds of age, gender, marital status, disability, race, ethnic or national origin, religion or sexual orientation. NWL monitors its workforce profile against census and sector data and aims to be recognised as an employer of choice within the diverse communities it serves, ensuring it takes full advantage of the rich backgrounds and abilities of current and potential employees.

NWL welcomes employment applications from people with disabilities and, where existing employees develop disabilities, they are supported to remain in employment, wherever practicable, by providing appropriate adjustments to their roles and/or effective redeployments. Occupational health physicians assist this process with professional medical advice.

Consultation and engagementEach Group company engages with its employees through a variety of means appropriate to its working environment. The importance of an inclusive and engaging management style is fully recognised. In 2010, NWL continued to build on its award-winning approach by engaging with all employees over some 120 departmental workshops facilitated by senior managers and 51 interactive roadshows facilitated by the directors. These were all structured to outline our vision and values, encourage a dialogue on improvements to working practices and environment and to seek views on its people strategy. This has been

further developed to include leadership events held bi-annually engaging the most senior managers in the continuous development of plans to enable the achievement of the vision.

Training and developmentAll Group companies train and develop their employees to benefit both the company and the individual. Annual appraisals are given high priority, as is the identification of training needs, in recognition of the importance of training and development in achieving the Group’s goals and policies. In NWL, a 360° feedback mechanism, which evaluates performance against the company values, has been introduced for all senior managers. The results of the feedback are discussed at annual appraisal meetings.

Our people are the key to our business success. Our aim is to build and maintain a culture which values, encourages and recognises outstanding performance, where we share a commitment to our objectives and to delivering our personal best. From corporate induction days and induction planning, to individual coaching, accreditation of skills through national vocational qualifications, and management and leadership programmes, we provide the resources needed to help employees reach their full potential.

Chris Loftus received the E

ssex Young Achiever of the Year A

ward

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We signed the Government’s Skills Pledge at the end of 2007, publicly committing to develop 90% of the workforce, around 2,600 employees, to at least National Qualification Framework (NQF) Level 2 – the equivalent of five GCSEs at grades A to C – by the end of 2010. This was achieved by July 2010 with 90.2% qualified to NQF Level 2 or above. National Vocational Qualifications continue to be delivered in customer and operational areas. In addition, we currently have seven graduates on our Graduate Development Programme and 29 apprentices.

NWL continues to implement its Management Development Framework which is structured (see diagram below) to cover the training needs of those who show the potential for management right through to development at director level. As part of this framework we are working in partnership with Newcastle Business School to provide qualifications, from a Diploma to a Masters degree, in leadership and management. In 2010, we introduced our LEADer programme, which is the next step in our Management Development Framework, to some of our operational departments. This development programme for supervisors, team leaders and works managers includes assessment against NQF Levels 2, 3 and 5 management standards, as appropriate, supported by formal development and coaching.

Recognising our employees’ academic achievements, the fifth annual skills awards were celebrated this year. Attended by senior managers from around the business, and with guest speaker Kriss Akabusi, the events were again motivational and memorable.

CommunicationThe Group uses a wide range of communication methods including magazines, brochures, leaflets, newsletters, intranet, notice boards and regular team meetings. NWL issues all employees with a series of information booklets clearly explaining areas such as the company’s vision and values, terms, conditions and benefits of employment, and occupational health and wellbeing programmes.

Health, wellbeing and safetyNWG places great emphasis on health, wellbeing and safety and a safe working environment. Employees are actively encouraged to be involved in identifying and eliminating hazards in the workplace. This has resulted in a significant reduction in accidents over recent years.

A health and safety policy is maintained and implemented at each subsidiary.

Our operating performancePeople continued

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Our emphasis on the importance of health and safety within NWL has resulted in major improvements to our safety record in recent years. This year we experienced nine reportable accidents and incidents per 1,000 employees, which continues the improving trend achieved over the last seven years.

We have established a medium term plan for taking health and safety forward in the company to 2015. We aim to further reduce the number of accidents by 10% each year and to maintain and improve the safety culture in the company.

NWL proactively supports and encourages employees to strive for high standards of health and wellbeing by providing a wide range of services, support and resources relating to occupational health, with the Group’s medical advisor providing comprehensive occupational health services, general health promotion and stress management. NWL employees also have on and off-site access to specialist advice and treatment to support recovery from musculoskeletal disorders (MSD). We have reduced sickness absence due to MSD by 39% over the year. In 2010, we introduced NWL Support. Part of this service is an Employee Wellbeing Programme which gives employees and their immediate family access to face to face or telephone counselling on a range of subjects regardless of whether or not the issues are work related. In addition, it also provides a telephone based case management service for employees who have either a stress related or mental health condition. We have reduced stress related sickness absence by 16% in the first year.

NWL’s current level of sickness absence is 3.1%, which is well below the norm for the sector.

Target 2010/11

Performance 2010/11

Employee turnover (%) 9.41 5.8Lost time reportable accidents

(per 1,000 employees) 4.3 4.1Sickness absence (%) 2.9 3.1

Note:1. No target set, industry average provided for information.

We continue to promote healthy eating, hydration and to discourage smoking in our workforce and offer excellent health screening and medical insurance schemes. Around 2,200 employees have been through our health screening and fitness standards programmes, both of which now include lifestyle advice elements.

Kathryn W

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Our external environment The largest of NWG’s businesses, NWL, operates in the north east and south east of England. The two areas have very different economic, demographic and water resource characteristics.

In the north east, there has been a gradual fall in overall water demand in recent decades as a consequence of a reduction in industrial demand for water. This trend is expected to continue but the pace of decline has now stabilised after some industrial closures during the economic recession. The north east compares well to the rest of the country as far as water resources are concerned and our major regional rivers can all be supported by Kielder Water. This provides very high security of supply for our customers. We also provide the highest levels of compliance for waste water across this area ensuring that we can return the water and sewage sludge to the environment satisfactorily whilst meeting the demands of all customers. Bran Sands is particularly important in this respect as it supports the heavily industrialised area within Teesside by treating its waste. The advanced anaerobic digestion plant there is now operating effectively and helping us to build our use of renewable energy.

NWL’s southern operating area is in a water scarce region that is forecast to experience further economic and population growth in the medium term. While this area has also seen a reduction in demand from heavy industry, and the recession is likely to dampen housing growth in the near future, we have a current deficit, meaning supplies are not secure in a severe drought. Future growth will intensify the pressure on the balance between supply and demand. NWL is implementing long term plans to ensure the availability of water supplies to meet both current and future demand in the region. After approval from the Environment Agency (EA), the project to increase the capacity of Abberton reservoir, near Colchester, coupled with ongoing demand management measures, will secure supplies to the Essex area for the foreseeable future.

EnvironmentOur operating performance

After 17 years in the planning, the £150 million Abberton reservoir construction scheme to help secure water supply to 1.5 million customers in Essex made good progress in its first year.

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Water qualityThe quality of water is critical to our customers and samples are taken on a daily basis for analysis under regulations monitored by the DWI. The quality in all areas served remained high.

North (N) South (S)

Target 2010/11

Performance 2010/11

DWI Mean Zonal Compliance (%)

N 99.85 99.95S 99.95 99.94

DWI Operational Performance Index (%)

N 99.65 99.84S 99.98 99.97

Distribution Maintenance Index (%)

N 99.70 99.70S 99.85 99.93

Compliance at water treatment works has improved significantly in 2010 with fewer microbiological failures than any previous year. This reflects the work being undertaken to achieve internal medium term targets for performance. In addition, service reservoir maintenance has been enhanced, with inspection rates now three times higher than historical frequencies. The aim of this work is to sustain a higher level of microbiological compliance while ensuring the integrity of the asset base for the long term.

Work using new cleaning techniques to refurbish more than 150 kilometres of the large diameter pipe network is well advanced. The network supplies drinking water to over half a million customers in south east Northumberland and parts of Tyneside. The majority of the cleaning works have now been delivered and the programme is due to be completed in June 2011, achieving a significant reduction in customer complaints of discoloured water. Progress has been maintained despite the unusually harsh winter.

Water resourcesWater resource availability is a key issue in our Essex and Suffolk areas. Work continued throughout 2010 on increasing the capacity of Abberton reservoir by 58%. Good progress was made and the project remains on programme.

In early 2011, construction of two new pipelines to bring water from Norfolk commenced. The one remaining part of the overall Abberton Scheme that requires permissions is the variation of abstraction licences at Denver and Blackdyke, in Norfolk, and we are working closely with the EA on progressing this. Once this scheme is operating, in 2014, we do not expect to have to develop further major resources in Essex for the next 25 years.

In addition to improving the supply of water, we believe it is important to manage the demand for water so that it does not exceed levels that can be supplied in a sustainable way. Metering has an important role to play in this regard. For several years we have been installing water meters upon change of occupier in properties in the Essex area. This is in addition to the optional metering scheme available to all customers. Around 48% of domestic households in Essex and 60% in Suffolk are now metered. In the north east, where supplies are more plentiful, 24% of households are metered.

New water efficiency targets were introduced in 2010/11 to reduce per capita consumption across the company’s domestic customers by one litre per property per day. These targets apply in all areas served and the award-winning work previously carried out in Essex was extended to the rest of the company. New initiatives have been developed, including an innovative theatre production called ‘Little Green Riding Hood’, with Fame Factory Spotlight, which took the water efficiency message to 36,500 school children over the last year. NWL met its water efficiency targets before the end of the year.

We continue to monitor the weather patterns and the early part of 2011 has proved to be dry with little rainfall. The resource situation is still good with adequate resources in storage to meet demand. There are no plans for restrictions although the company will continue to use awareness campaigns to encourage customers to control demand in dry periods.

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Our assets, once again, proved very resilient during the most severe December weather for more than 100 years in the north east of England. It proved very challenging but we were able to maintain supplies to customers largely due to the exemplary efforts of our employees who worked tirelessly in difficult conditions. The severe freeze and subsequent thaw inevitably resulted in a significant increase in burst pipes and leakage, both on our own network and customer premises. As a result, in our northern operating region, the water lost over the winter period meant we, along with other companies, did not meet our annual leakage target. In our southern region, conditions were not quite so severe and we achieved our target. We have recovered from the effects of the winter through implementing an action plan which will position us well to meet the target in the following year.

Waste waterNWL’s exceptional performance for sewage treatment works continued with all numerically consented works again remaining compliant for the year.

(Northern operating area only)Target

2010/11Performance

2010/11

Sewage treatment works (%) 100 100

Bathing waters mandatory standard (%) 100 97

Pollution incidents (category 1, 2 and 3) 102 101

The advanced anaerobic digestion plant at Bran Sands is now fully operational and generating the expected volumes of biogas and electricity. The re-organisation, to operate the plant at much lower manning levels than previously, has been successfully implemented. Construction is now under way on a similar plant at Howdon, on Tyneside, to process the remainder of NWL’s sludge.

A total of 33 of the 34 bathing waters in the north east passed at the required mandatory standard and 28 met the more demanding guideline standard. The single mandatory failure was Saltburn and NWL is carrying out a detailed investigation on whether any of our assets could be contributing to this and is working with other agencies to determine how they may be impacting on this bathing water.

The number of properties experiencing internal flooding due to hydraulic overloading reduced significantly in 2010/11. This can be attributed to a combination of less frequent and intense summer storms in 2010 and the cumulative effect of our sewer flooding investment programme. Enhanced resolution rain radar has now been in place in the north east since 2009 allowing us to identify severe weather across the region.

During 2010/11 we completed 43 schemes at a cost of £17.5 million that resulted in the removal of 178 properties from flooding registers. Planning to identify schemes for coming years forms a key part of our investment programme and is well advanced, with a further 270 properties to be addressed in 2011/12. Additionally, in line with our serviceability action plan for sewer flooding, we have embarked on a programme of increased mitigation. This covers not only properties where a scheme is not cost beneficial but also properties where a solution may not be implemented quickly.

The number of properties flooded due to other causes also reduced significantly in 2010/11. This reduction has been influenced by increased sewer cleansing activity as well as better weather. Carbon management The water industry is one of the largest users of energy in the UK and we aim to play a full part in support of Government’s plans to reduce emissions. We have been working hard over recent years to reduce our carbon footprint while preparing ourselves for the future challenges of a change in climate and the weather events we may face as a consequence.

NWL has published its carbon management plan to meet its target of a 35% reduction in operational emissions by 2020, from a 2008 base.

The carbon management plan includes energy efficiency, renewable energy generation, transport and water efficiency and supports our activities to help us adapt to a changing climate. It represents a sustainable and responsible way forward for the business, our customers and the environment. The projects which will help us to achieve our carbon reduction target are outlined on the next page:

Our operating performanceEnvironment continued

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our £33.0 million investment in thermal hydrolysis −advanced anaerobic digestion at Bran Sands, which provides 50% (c.4.7 megawatts) of the energy requirements of the site. This enables waste water sludge to generate methane to fuel gas engines and produce green electricity. A similar plant will be constructed at Howdon, which is planned for completion in 2013/14. Together these plants will help meet our target of generating 20% of our energy needs from renewable energy, as well as reduce our overall energy demand;hydroelectric installations at five reservoirs including −the UK’s largest man-made reservoir, Kielder Water. A recently commissioned £2.5 million hydroelectric project at our Selset reservoir that will generate up to 750 kilowatts of electricity – 4,000 megawatt hours a year. Renewable energy is also being generated with hydroelectric plants at Derwent, Lartington and Wear Valley reservoirs in addition to biogas combined heat and power plants at Stressholme, Hexham and Aycliffe;limiting tertiary ultra violet disinfection outside the −bathing water season at five major works reduces energy consumption and carbon emissions with no detrimental effect on the marine environment; andencouraging customers, through our using water −wisely campaign, ‘Bad habits cost the earth’ to recognise that if they waste water, they also waste energy (information and tools are available for customers on our websites).

Through these projects, and by reviewing the efficiency of our pumps across the business, we have reduced the amount of energy used by almost 9% over the last five years.

NWL has successfully achieved the Carbon Trust Standard for its efforts in reducing greenhouse gas emissions. The standard provides an objective benchmark against which our commitment and success in addressing our climate change impact was assessed and is significant as it demonstrates progress against our ambitious carbon management plan.

Climate changeThe water cycle and the changing weather have a direct influence on the provision of water and waste water services. NWL’s employees are experienced in managing the effects of too much or too little rainfall, but changing weather patterns will present a growing challenge for the business.

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In past years, we have carried out research into the likely impact of climate change on all our assets and water resources and this has been incorporated in our climate change policy as part of our corporate responsibility work. This work is continuing, based on the latest UKCP09 projections published in 2009 by the UK Climate Impacts Programme.

Over the course of the past year we have incorporated this work into our response to the new adaptation reporting power granted to the Government by the 2008 Climate Change Act. This work has highlighted that increasing rainfall intensity is the most significant short term threat that we will face as a result of the changing climate. This represents a serious challenge if we are to manage successfully the higher level of risk of sewer flooding that will result. We have already begun to take actions that will better prepare us for this challenge, including investment in weather radar, remote monitoring of the sewer network and joint working with other drainage agencies. These will all contribute to our better understanding and management of the threat.

More positively we have found that the anticipated drier summers of the future are less of a concern for NWL than for many other companies in our industry. The ongoing investment to increase the capacity of Abberton reservoir plays a big part in this for our Essex operating area. Work is now under way on this project that has been in development for over 15 years, a reflection of the long lead times for such environmentally sensitive schemes. The presence of Kielder Water helps protect the north east region to an even greater extent. Despite this, we anticipate that we will need to monitor and formally update our understanding of the threat from the changing weather at regular intervals.

Waste and recycling NWL is conscious of the need to preserve resources, minimise waste and to reduce our impact on the environment.

NWL aims to minimise the amount of waste generated by its activities and to dispose of residual waste in a responsible manner. We recognise that our key wastes come from three main streams; investment delivery projects, day to day operations and our offices. These wastes include spoil from road works, water and waste water sludge and electrical and office wastes. We aim to reduce, reuse, recycle, recover energy from or dispose of these wastes in a responsible manner

Our operating performanceEnvironment continued

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with the prime focus being to reduce the amount of disposed waste.

NWL has developed some innovative solutions to treat and dispose of waste as evidenced by our first industrial scale use of sewage treatment sludge to generate energy through advanced anaerobic digestion and also our world first project of its scale using reed beds for water treatment sludge proving that reed beds can be successfully used to treat raw water sludge rather than rely on energy intensive engineering solutions.

Biodiversity and conservation NWL’s aim is to conserve and enhance our natural environment where appropriate, working to avoid, or minimise, adverse impacts through good land management and operational practice. We recognise that our management of water and associated landholdings provides an opportunity for the wildlife and habits that occur, or could potentially occur, within these areas to flourish.

We formally consider conservation issues during the planning and construction phases of all our projects with minimal environmental impact and investigate opportunities for biodiversity conservation and enhancement in all areas of our work. We have a duty to take account of environmental issues in the early stages of the planning process and have processes in place to ensure this occurs.

We understand the importance of designated conservation sites and our obligation to our landholdings designated as Sites of Special Scientific Interest (SSSIs) and we actively manage our SSSI landholdings towards meeting national favourable conditions status targets. In addition we have a responsibility to put into practice protected species management to protect and to ensure the survival of protected species that occur within our landholdings.

In order to enhance our existing data in 2008 we began comprehensively mapping the type and extent of Biodiversity Action Plan (BAP) habitats on our landholdings and undertook specific species surveys. To date, 69 BAP species have been identified with at least 11 priority BAP habitats including five waxcap grassland sites of international importance, 84 hectares of blanket bog and upland wet heath and 19 hectares of fen, marsh and swamp. Comprehensive data is now collated for waxcap grasslands, reptiles, butterflies, dragonflies, woodland, calcareous grassland and ponds.

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This year the company has been re-accredited by FTSE4Good and is awaiting re-accreditation as a Platinum Plus company by BITC for 2011. The Queen’s Award for Industry is still in place as it is awarded for a five year period. This year, the company was also recognised by Ethisphere, an American-based international think-tank, as one the 110 most ethical companies in the world and one of only five UK-based companies.

The support we give to our communities focuses on five broad areas.

Investment in our communitiesThis year the Group made charitable donations totalling £152,000. In addition, and in line with previous years, we have contributed resources with a value equivalent to at least 1% of our annual pre-tax profits (through cash, employee time and expertise, or use of our facilities) to projects which benefit the communities we serve. Our employees fundraised £69,000 for charities this year.

The ‘Care for safety’ scheme, which encourages employees to reduce accidents and associated lost time, has triggered payments over £16,000 for our charities nominated by employees (Great North Air Ambulance Service, Royal National Lifeboat Institution, Myelin Project, Zoe’s Place, Macmillan Cancer Support, St Cuthbert’s Hospice and East Anglian Children’s Hospice). Since it began in 2004 over £326,000 has been raised for charity.

Community Foundations covering our areas of supply hold endowment funds totalling nearly £1.0 million contributed by NWL over the last 19 years. These are long term investments with the income from the funds used to support community and environmental initiatives. Community groups are chosen by committees of our own employees (44 recipients this year).

In addition to cash donations, NWL seeks to support many projects through in-kind giving and support. Through ‘Good Moves’ we aim to put NWL estates into productive community use. Working in partnership with artist’s groups CoExist and Metal, we have developed a temporary art project at our empty Southend complex to provide space for a temporary gallery, studio and small creative business complex.

CommunitiesOur operating performance

NWL supports the communities we serve in a number of different ways. We have been widely recognised as leaders in our support for projects that make the areas we serve better places in which to live, work or invest.

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We have focused on developing affordable rural housing to contribute to the sustainability and vitality of those communities, including support of the Prince of Wales’ Affordable Rural Housing Initiative since it was launched in 2003. As part of this commitment we are working with Hastoe Housing on a project for 12 houses on land close to Hanningfield water treatment works in Essex and these are due for completion in 2011. This builds on our success with the six properties for affordable rent in Kielder Water & Forest Park which were added in June 2009, taking the total number of new builds there to 12.

The Kielder Partnership was created in 1994 and consisted of private, public and voluntary sector partners committed to the development of Kielder Water & Forest Park as a tourism, leisure and recreation destination. Activity has focused on delivering the Partnership’s vision – ‘Kielder Big Picture’ – including the use of the fabulous tracks and trails developed in 2008/09.

The 26 mile Lakeside Way, a multi-user track, is now used by 45% of all visitors. This trail was used for the

Directors p

articipating in ‘Just an hour’

first Kielder Marathon in October 2010, dubbed the most beautiful in Britain, organised by Olympic athlete Steve Cram. This combined with other activities including the development of mountain bike trails and the increasingly popular Kielder Observatory, has helped to increase visitor numbers between 2008 and 2010 by 9.4% to 306,250, creating an additional 66 direct and indirect jobs and boosting the spend in the local economy by 20% to £15.5 million.

In December 2010, the structure of the Partnership was formalised by forming a registered charity called the Kielder Water & Forest Park Development Trust which will continue to deliver the vision and 25 year investment plan for the area. The website www.visitkielder.com provides further details of all facilities.

Castle View Enterprise Academy, in Sunderland, for which NWL is lead sponsor, completed its first year of operations during the year. The new academy undertook Ofsted assessment and from being a failing school previously is now a school making good progress.

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Participation in our communitiesAs part of NWL’s in-kind giving, we encourage employees to volunteer their time, skills and expertise through our ‘Just an hour’ volunteering scheme. We support our people to actively participate in their local communities by giving them work time to volunteer in projects of their choice. During the year our people have helped hundreds of community projects, completing tasks as varied as beach clean ups, organising charity balls and taking on ambitious gardening and decorating challenges.

For example, a group of employees volunteered their time to support people with disabilities to participate in an activity weekend organised by the charity Leonard Cheshire Disability. Together, volunteers and service users enjoyed outdoor activities including abseiling and taking a zip wire across a river. Further highlights came from the Essex based employees who collected over 1,000 boxes of food supplies as part of the Harvest for the Hungry campaign 2010. This important contribution helped the humanitarian campaign to provide an essential lifeline to villages and communities scattered across Eastern Europe.

Currently 27% of employees participate in the ‘Just an hour’ volunteering scheme and last year gave over 7,600 hours to the community. Over 870 different organisations were given financial and in-kind support during the year.

Educating our communities about their environmentKey partnerships have been developed by NWL to help the conservation of biodiversity on our sites, to facilitate public access and to develop conservation education. Our contribution includes funding project officers and providing expertise to the organisations. Our current partnerships include:

Northumberland Wildlife Trust (Kielder and Bakethin); −Durham Wildlife Trust; −Essex Wildlife Trust (Hanningfield); −Broads Authority (Lound and Trinity Broads); and −Davy Down Trust (North Stifford, Essex). −

A wide range of targeted educational materials are available on our websites for children and teachers. We promote the use of these materials and celebrate innovative approaches to environment and health education via our support of the Northumbrian Water Schools Awards in the north east and Cash for Schools Awards in Essex.

We also lead on specific environmental education initiatives such as the innovative Northumbrian Water GLOBE project. This year the project, in collaboration with The Climate Change Schools Project, ClimateNE, EA and GLOBE UK, is supporting five schools to take control of capturing and analysing local weather data, patterns and extreme events (using weather stations and training provided by NWL). Ultimately, children involved will become ‘community scientists’ to drive behavioural change at local levels.

Supporting healthy communitiesNWL continues to promote the health benefits of drinking tap water and our water for health campaign aims to encourage people to lead a healthy lifestyle. To date, over £341,000 has been provided to fund free mains-fed water coolers in schools and around 740 have been supplied in nearly 410 schools. We also continue to promote bottle-free water coolers as a sustainable alternative to bottle-fed coolers. Similarly, we use our ‘tap into’ initiative to donate bottled tap water to community sporting events in order to promote the importance of rehydration during exercise. This year we donated 82,300 bottles of tap water to events.

Working with a wide and diverse range of sporting partners is a natural extension of our water for health campaign and we work with them to support grassroots sporting activities to get people active as well as educating them on healthy eating and good hydration.

Through our partnerships we have reached over 96,000 children and adults. We provide:

links and networks to enable sporting partners −to get together to share ideas and resources;financial support of approximately £50,000 per −annum which, in 2010/11, then levered over £600,000 from other sources;

Our operating performanceCommunities continued

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advice and marketing support on programme −development;bottled tap water, sports bottles, water jugs or −mains-fed bottle-free coolers to reinforce the importance of drinking tap water to rehydrate during sporting activities; and help with fundraising and raising the profile of the −partnerships to attract additional investment.

We have linked our ‘Good moves’ initiative and our ‘Water for health’ campaign to develop Healthworks. This is a unique project utilising one of our redundant buildings to help tackle the poor long term health of the residents in Easington, County Durham, by granting a 99 year lease to County Durham Primary Care Trust and working in partnership to develop services for the local community in an area where census records show one of the worst health records in the country.

We are represented on the steering group for Healthworks and provide research, marketing and communications support. The centre has received almost 20,000 visits to date and now provides over 58 health and community support services including

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a GP led walk-in health centre open 8am to 8pm 365 days a year. It acts as a community focal point where service providers and community groups can come together to address issues that affect the quality of life in their local community.

Supporting developing communities through WaterAidNWL has continued to raise funds and awareness for the work of WaterAid which brings sustainable water and sanitation solutions, as well as hygiene education, to the poorest parts of Africa and Asia, as it has since the charity was formed by the water industry in 1981.

The employee fundraising committee has raised more than £4.0 million, since 1997, with the help of the company and last year focused its fundraising support on specific projects in Ethiopia. We support our employees to become ambassadors for the charity and encourage annual supporter trips to see WaterAid projects. This year, asset manager Craig Holliday visited Bangladesh and saw first hand how our adopted international charity saves lives.

Investment into researchand development by NWL

£m

2.1

1.8 1.8

2.1 2.3

06/07 07/08 08/09 09/10 10/11

Invoice payment performance %

19 18 19 16

21

30 30 30 30 30

06/07 07/08 08/09 09/10 10/11Target

Creditor days ratio

Customer satisfactionwith value for money

%

87 83 84 83 85 85 85 85 87

06/07 07/08 08/09 09/10 10/11

88

11/12Target

Value for money

Customer satisfactionwith overall service

%

92 89 88 88 89

90 90 90 91 93

06/07 07/08 08/09 09/10 10/11 11/12Target

Overall service

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Sustainability at a glance

We report on our sustainability performance across many aspects of our business in much more detail on our websites. By this means we are able to regularly update our information to reflect the most accurate performance snapshot available. Below are a few indicators which sum up NWL’s 2010/11 annual performance and trend data at a glance; many more are available by using the links online.

Customer

Competitiveness

Sewage treatment worksperformance

%

99.8 98.4 100 100 100 100 100 100 100 100 100

06/07 07/08 08/09 09/10 11/12 10/11Target

Sewage treatment works compliant with numerical consents

Pollution incidents(category 1, 2 and 3)

%

142

176

119

94

114 101 

116 116 86 100

2006 2007 2008 2009

88

2011 2010Target

Pollutionincidents

Reduction in sickness absence due to musculoskeletal disorders since the introduction of Rehabworks in 2008

%

9

22

39

08/09 09/10 10/11

Community giving as apercentage of pre-tax profit1

%

1.17 1.12 1.11

1.16 1.11

1 1 1 1 1 1

06/07 07/08 08/09 09/10 11/12 10/11Target

Communitygiving as a percentage of pre-tax profits

1 Includes employee time, gifts in kind and cash support

Employees who are proud to work for the company

%

72 75 77 80 80

2006 2007 2008 2009 2015 2010

Employeesurvey response

72 81

73 73 81

Target

Employee participationin ‘Just an hour’

%

06/07 07/08 08/09 09/10 11/12 12/1310/11

16.2

23.9 22.826.0 27.425

30

40

50

Employeeparticipation in‘Just an hour’

Target

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People Communities

Environment

2011

Sustainability highlights Customer

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Customer Our relationship with customers is core to the success of our business and it is essential that they trust us. Customer service is at the heart of the company’s culture and all employees have a clear focus on getting things ‘right first time every time’. Although we are required to meet regulated standards for customer service, this does not define our aspiration and the quality of our service goes beyond that.

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Medium term goals Our medium term goals are company-wide. By working together to achieve each goal and constantly improve our performance, we will ultimately achieve our vision as the national leader.

Customer medium term goals

Lowest on unplanned interruptions

Top SIM score for a water and sewerage company

Top Consumer Council for Water research score in value for money

Customer satisfaction scores increased to 8.5 average

Stable serviceability

Zero breaches of health related water quality standards

Security of supply

Minimised internal flooding

Minimised discoloured water complaints

High standards of customer service in non-regulated business

Integration of private drains and sewers

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Customer at a glance We report on our sustainability performance across many aspects of our business, below are the indicators which sum up our customer 2010/11 annual performance and trend data.

Medium term goals Lowest on unplanned interruptions We plan to have the lowest number of customer‟s affected by unplanned losses of water supply but, if one does occur, we aim to restore supplies within six hours.

Properties subject to unplanned interruption of six hours or more Northumbrian Water

Number Properties subject to unplanned interruption of six hours or more Essex & Suffolk Water

Number

Back

Back

20,389 3,318 8,278 8,671 1,574

3,000

3,000 3,000

1,700

0

5,000

10,000

15,000

20,000

06/07 07/08 08/09 09/10 10/11

Properties subject to unplanned supply interruption

Target

3,318 3,967 3,353 1,434700

2,000

2,000

2,000

1,100

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

06/07 07/08 08/09 09/10 10/11

Properties subject to unplanned supply interruption

Target

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Top Service Incentive Mechanism (SIM) score for a water and sewerage company We will deliver top class customer service, right first time every time, which clearly sets us apart and places us firmly at the top of Ofwat‟s performance league table for water and sewerage companies.

Quantitative SIM score Number Qualitative SIM (score out of five)

Number

The indicator measures complaints and unwanted contacts from customers, the measure combines existing performance indicators with ones specifically developed for the SIM. The better a company‟s performance, the lower the score.

The indicator measures how satisfied customers are with the quality of service they receive, based on a survey of consumers who have had direct contact with us. The top score on this measure is five.

Back Back

Overall SIM scores for water and sewerage companies

%_

The overall SIM score is produced by combining the two measures, with both having equal weighting. The two scores are then added to produce an overall score between 0 and 100. The better a company‟s performance, the higher the score.

Back

211 1190

50

100

150

200

250

Northumbrian Water Limited

Sector leader

4.10 4.470

1

2

3

4

5

Northumbrian Water Limited

Sector leader

72 840

10

20

30

40

50

60

70

80

90

100

Northumbrian Water Limited

Sector leader

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Top Consumer Council for Water research score in value for money We will deliver top quality water and sewerage services at prices our customers think are value for money.

Satisfaction with value for money of water services

%_ Satisfaction with value for money of sewerage services

%_

Our bills did increase which may have influenced customers‟ perception, albeit they remain the third lowest (on average) across the industry. A more influential factor in terms of value for money may well be the current economic climate which will impact upon many aspects of customer affordability.

Back Back

69 72 70 69 7280 83 81 79 710

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010

All companies Consumer Council score

Northumbrian Water Limited Consumer Council score 78 76 76 71 7386 83 82 80 71

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010

All companies Consumer Council score

Northumbrian Water Limited Consumer Council score

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Customer satisfaction sores increased to 8.5 average We will deliver great service to our customers so that they are completely satisfied and more likely to share that satisfaction with family, friends and colleagues. We measure the views of our customers with quarterly tracking research alongside qualitative work in focus groups. This helps us understand their views on service, value for money and other issues as well as their general perception of the company.

Overall customer satisfaction

Number Satisfaction with value for money

Number

Back Back

Customer satisfaction with overall service (net value)

% Customer satisfaction with value for money (net value)

%

Back Back

Domestic customers‟ satisfaction with overall service and overall value for money, expressed as an average over the surveys carried out during the year. Average satisfaction is based on a scale of 1 to 10 using the score of 6 and above as satisfied. Net scores are used to show true satisfaction by taking into consideration those who are dissatisfied who score between 1 and 3. Independent surveys of 500 customers (300 north, 200 south) chosen at random, but representative of the customer base, are carried out each quarter, a total of 2,000 customers each year.

7.9 8.1 8.1 8.0 8.1

8.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

06/07 07/08 08/09 09/10 10/11 11/12

Average score out of 10

Target7.5 7.7 7.9 7.6 7.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

06/07 07/08 08/09 09/10 10/11

Average score out of 10

Target

92 89 88 88 89

90 90 90 91 91

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11 11/12

Overall service - net score

Target87 83 84 83 85

85 85 85 87 87

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11 11/12

Value for Money - net score

Target

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37

Stable serviceability We want Ofwat to judge that our assets are performing to the required standard so that they are able to deliver expected levels of service now and in the future. Maintaining our assets in a serviceable condition is key to providing excellent service for our customers. Serviceability for the water and sewerage non infrastructure sub‐services remains stable.

For the water and sewerage infrastructure sub-services we have Serviceability Action Plans in place to move serviceability from marginal to stable. Excellent progress has been made in 2010/11 for both of these sub-services. Our assessment is that the water infrastructure sub-area is now stable and, with continued progress, sewerage infrastructure serviceability should be classified as stable at the end of 2011/12. Each of the sub areas has a set of associated indicators, these include mains bursts (stable), water treatment works Coliform non-compliance (stable), sewer collapses (stable) and the number of sewage treatment works non compliant (stable).

Serviceability performance

09/10 10/11

Water non-infrastructure Stable Stable Serviceability maintained

Water infrastructure Marginal Stable Improving service

Sewerage non-infrastructure Stable Stable Serviceability maintained

Sewerage infrastructure Marginal Marginal On track to be stable in 11/12

Back

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Zero breaches of health related water quality standards We will have no failures of water quality standards that could indicate a potential risk to public health and in particular, no coliforms or E. Coli in the treated water at service reservoirs or water treatment works.

Coliform compliance at water treatment works

%_ Coliform compliance at service reservoirs

%_

2010/12 - Target not achieved * 25 failures in 26,303 samples

2010/12 - Target not achieved * 22 failures in 16,525 samples

Back Back

E. Coli compliance at water treatment works

% E. Coli compliance at water service reservoirs

%

2010/12 Target not achieved * 1 failure in 9,710 samples

2010/12 - Target not achieved * 2 failures in 16,987 samples

Back Back

99.96 99.95 99.93 99.93 99.97

100 100 100 100 100 100

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11* 11/12

Compliance of treatment works

Target99.98 99.99 99.97 99.98 99.99

100 100 100 100 100 100

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010* 2011

Sample compliance

Target

100 100 99.99 100 99.99

100 100 100 100 100 100

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010* 2011

Sample compliance

Target 100 100 99.97 100 99.99

100 100 100 100 100 100

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010* 2011

Sample compliance

Target

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Security of supply We want 100% security of supply as it means that we have adequate water resources. Through demand management we aim to ensure that there are no hosepipe bans in the north and no more than one in every 20 years in the south.

Security of Supply Index – Northumbrian Water

%_ Security of Supply Index – Essex & Suffolk Water

%_

Back

Following the completion of the Abberton reservoir scheme the Security of Supply Index will increase to 100%.

Back

Population subject to supply restrictions

number

Type of restriction 06/07 07/08 08/09 09/10 10/11

Hosepipe restrictions 0 0 0 0 0

Drought orders 0 0 0 0 0

Sprinkler/unattended hosepipe restrictions

0 0 0 0 0

Back

100 100 100 1000

10

20

30

40

50

60

70

80

90

100

07/08 08/09 09/10 10/11

82 84 85 820

10

20

30

40

50

60

70

80

90

100

07/08 08/09 09/10 10/11

Cu

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40

Minimised internal flooding We want to limit the number of properties flooded internally each year to no more than 300. We will achieve this by investment in flooding alleviation schemes, network performance instrumentation, rain radar and management information systems.

Properties subject to internal flooding

Number Schemes completed that alleviate internal flooding

Number

Back Back

Properties removed from the flooding register as a result of our activities

%_ Investment in schemes to alleviated internal flooding

£_ (millions)

Back Back

313 813 829 973 3830

100

200

300

400

500

600

700

800

900

1,000

06/07 07/08 08/09 09/10 10/11

20 18 22 34 430

5

10

15

20

25

30

35

40

45

06/07 07/08 08/09 09/10 10/11

129 156 111 277 178

250270

0

50

100

150

200

250

300

06/07 07/08 08/09 09/10 10/11 11/12

Properties removed from register

Target

12.7 13.4 16.6 27.0 24.80

5

10

15

20

25

30

06/07 07/08 08/09 09/10 10/11

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Minimised discoloured water complaints We want to limit the number of discoloured water complaints to no more than 5,000 by continued good performance of our water treatment works as well as investment in trunk mains cleansing and network management.

Customer complaints about discoloured water

%_

Back

8,229 6,425 4,603 4,022 5,685

5,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

06/07 07/08 08/09 09/10 10/11 11/12

Customer complaints received

Target

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High standards of customer service in non-regulated business We will set measures for our non-regulated business to ensure that all our customers get great service.

Customer satisfaction with fishing facilities

%_ Satisfaction with customer service at Kielder Water & Forest Park lodges

%_

We are currently reviewing the way in which we measure customer satisfaction in our non-regulated business, to establish a baseline of our current performance with a view to setting targets for improvements. Back Back

94 9879 830

10

20

30

40

50

60

70

80

90

100

2009 2010

Customer service

Quality of facilities

98.94 89.200

10

20

30

40

50

60

70

80

90

100

2009 2010

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Integration of private drains and sewers

We will integrate the maintenance and operation of private drains and sewers into our sewerage operation without compromising network performance or customer service. The transfer of around 13,500km of private drains and sewers to NWL‟s responsibility will take place on 1 October 2011. This change is being driven by the Government and is good news for our customers as ownership and resolution of drainage problems will be much clearer. Around 1.2 million properties in our northern region will benefit from the transfer.

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Additional information

Properties at risk of low pressure Northumbrian Water

Number Properties at risk of low pressure Essex & Suffolk Water

Number

Billing contacts responded to (within five working days) Northumbrian Water

%_ Billing contacts responded to (within five working days) Essex & Suffolk Water

%_

Written complaints responded to (within ten working days) Northumbrian Water

%_ Written complaints responded to (within ten working days) Essex & Suffolk Water

%_

298 181 271 260 230

274 274 274 274256

0

50

100

150

200

250

300

350

06/07 07/08 08/09 09/10 10/11

Properties at risk of low pressure

Target

130 60 40 40 41

126 126 126 126

55

0

20

40

60

80

100

120

140

06/07 07/08 08/09 09/10 10/11

Properties at risk of low pressure

Target

99.3 99.3 99.2 99.4 99.3

99.0 99.0 99.2 99.2 99.3

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Billing contacts responded to (within five working days)

Target

99.2 99.6 99.6 99.4 99.7

99.0 99.0 99.2 99.2 99.3

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Billing contacts responded to (within five working days)

Target

99.9 99.9 99.9 99.9 99.9

99.8 99.8 99.8 99.8 99.8

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Written complaints responded to (within 10 working days)

Target

99.9 99.7 99.7 99.9 99.8

99.8 99.8 99.8 99.8 99.8

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Written complaints responded to (within 10 working days)

Target

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Bills based on meter readings Northumbrian Water

%_ Bills based on meter readings Essex & Suffolk Water

%_

Back Back

Complaint cases reviewed by CCWater assessed as good

%_ Customers on Special Assistance Register

Number

We have a computerised register which allows us to provide special services for our customers who need extra assistance. For example, if a customer needs a continuous supply of water due to a medical condition, we can provide bottled water if there is an emergency interruption to their supply. We also provide services such as large print bills and operate a password scheme for our customer‟s peace of mind. These services are free and totally confidential.

Back

99.84 99.80 99.90 99.92 99.87

99.95 99.95 99.95 99.95 99.90

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Bills based on meter readings

Target 99.95 99.95 99.95 99.95 99.90

99.95 99.95 99.95 99.95 99.90

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Bills based on meter readings

Target

90 97 93 98 990

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

4,557 5,129 6,832 7,555 8,688

2,7162,741

2,4442,489

2,438

0

2,000

4,000

6,000

8,000

10,000

12,000

06/07 07/08 08/09 09/10 10/11

Essex & Suffolk Water

Northumbrian Water

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Case study Working in partnership We always aim to exceed the expectations of our customers by taking personal responsibility for delivering and communicating a good service and keeping promises. We have many examples of „right first time every time‟, two of these are outlined below.

Many of our domestic customers have meters and pay bills based upon how much water they use. Having a meter can help save money, however, for those who have larger families, big gardens or use lots of water, this can be more difficult. This was exactly the case for the Young family from Stockton-on-Tees. Father of two Stephen Young contacted us to discuss his metered bill and seek advice about ways to reduce his charges. Stephen already used water butts to store rainwater, however, following our advice, Stephen and his family made some simple changes including turning off the tap while brushing their teeth, taking shorter showers and using NWL‟s water efficiency pack containing a variety of water saving devices. Commenting on the help and advice he received, Stephen said: “Getting in touch with NWL is easy. I know my call will be answered straight away, which is amazing these days that I will be able to speak to someone who cares and relates to my concerns.” Vikki Anstey, our customer advisor who talked to Stephen, said: “It‟s all about listening to each customers concerns

and then making sure you meet their needs and go the extra mile to help them.” We aim to work in partnership with our major business customers as we know that a key factor for them in their business is reliability and security of our services. Tees Valley crisp manufacturer KP Foods (KP) is a major customer of NWL‟s Billingham sewage treatment works. To improve KP‟s economic performance and enhance the sustainability of its operations, KP proposed to construct a membrane bioreactor to enable water to be treated and re-circulated at its plant. NWL‟s account manager worked with KP to ensure that the proposed development did not detrimentally impact on NWL‟s sewage treatment works compliance while providing advice and support. Both parties have benefited from the close, honest working relationship which has resulted in a great deal of trust and respect:

water consumption has been reduced meaning less abstraction, treatment and pumping for NWL and lower water bills for KP; and

the trade effluent discharge is cleaner and requires less treatment, reducing the cost of power and de-sludging for NWL, resulting in lower trade effluent discharge costs for KP. NWL and KP have each increased their competitiveness by improving their efficiency.

2011

Sustainability highlights Competitiveness

Co

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ess

20

11

48

Competitiveness Competitiveness will drive us to greater efficiency and, indeed, to be most efficient water company. It is not just about driving cost down but using innovation to support out activity.

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20

11

49

Medium term goals Our medium term goals are company-wide. By working together to achieve each goal and constantly improve our performance, we will ultimately achieve our vision as the national leader.

Competitiveness medium term goals

Maximise income collection

Ofwat measure of minimum of lower A for water and waste water by March 2014

Ofwat measure of return on capital employed greater than 6.3%

Non-regulated business growth

Credit rating BBB plus stable outlook

External recognition for achieving business excellence

Capital efficiency at 6%

Efficient computer systems

Ofwat recognition for asset management

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50

Competitiveness at a glance

We report on our sustainability performance across many aspects of our business, below are the indicators which sum up our competitiveness 2010/11 annual performance and trend data at a glance.

Medium term goals

Maximise income collection We will work with customers who don’t pay to ensure that we collect as much money as possible. This will minimise the cost of bad debt to the company and also reduce the burden of additional cost placed on those customers who pay their bills. Collection of charges has continued to prove difficult this year. The economic recession and rising cost of living have added to the affordability issues seen in the household sector. This is reflected in the growth of the number of household insolvencies within our area which are up 48% on the previous year’s numbers.

Back

Ofwat measure of a minimum of lower A for water and waste water by March 2014

We will save at least £25m from our annual operating costs on a sustainable basis to achieve Ofwat’s A efficiency ranking as a leading company. We are making good progress towards the £25 million, delivering around £7 million after year 1 (2010/11).

Ofwat measure of return on capital employed greater than 6.3%

We will achieve Ofwat’s target level of return (profit) to help grow our dividends and attract investors to support our operations. The return on capital employed as measured by Ofwat was 6.2% for 2010/11 (2009/10 5.9%) and we are working towards achieving returns in excess of 6.3%.

Non-regulated business growth We aim to grow our non-regulated business by 5% per year. We are in the process of restructuring this area of our business. This medium term goal will be reviewed and targets set which reflect future plans in this area.

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51

Credit rating BBB plus stable outlook We will maintain a stable credit rating as we need to continue to borrow money to fund our operations and keep borrowing costs efficient.

Credit rating for Northumbrian Water Limited

06/07 07/08 08/09 09/10 10/11

Fitch BBB+ stable

BBB+ stable

BBB+ stable

BBB+ stable

BBB+ stable

Standard & Poor’s BBB+ stable

BBB+ stable

BBB+ stable

BBB+ stable

BBB+ stable

Moody’s Baa1 stable

Baa1 stable

Baa1 stable

Baa1 stable

Baa1 stable

External recognition for achieving business excellence

We want to achieve Investors in Excellence status to allow us to benchmark our business process, results and style against other blue chip companies. Northumbrian Water Limited will undertake an externally validated assessment of against the EFQM (formerly known as the European Foundation for Quality Management) Excellence Model to achieve the Recognised for Excellence (R4E) accreditation. We aim to complete this by the end of April 2012.

Capital efficiency at 6% We aim to save 6% by delivering our investment programme efficiently.

We are currently on target to deliver our regulatory outputs in line with our expectations for capital efficiency.

Efficient computer systems

We will ensure that we have efficient computer systems that positively support our business. The recently appointed Head of Information Services (IS) has undertaken a full review of IS operations identifying strengths and weakness and their causes within our network and architecture. Quick wins have been identified and longer term plans are being developed.

Ofwat recognition for asset management We aim to be one of the three highest scoring water and sewerage companies in Ofwat’s Asset Management Assessment. We have a cross functional Asset Management Plan in place to achieve a top three water and sewerage company Asset Management Assessment (AMA) at the next periodic review in 2014. Progress against the plan will be monitored but actual progress will not be known until the AMA score is received.

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52

Additional information

British Water annual water company survey results

Number

Back

5.8 6.9 7.7

6.0

5.5

6.2

0

1

2

3

4

5

6

7

8

9

08/09 09/10 10/11

NWL results

Industry average

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53

Case study World first at Hanningfield An initial stage of water treatment involves removing silts and algae from raw reservoir water, a process which creates around two million litres of a ferric (iron) based liquid sludge every day. Around 99.8% of this is water which, once separated, can be recycled back to the reservoir for re-use. In this case, innovation is clearly linked to our competitiveness. Traditionally, sludge was discharged into lagoons storing the solids whilst allowing clear water to overflow back into the reservoir. At Hanningfield, our largest water treatment works, the last lagoon was near the end of its life and although it would have been quicker and easier to have specified traditional mechanical treatment, a considerable amount of work over three years was undertaken to prove that reed beds could provide a sustainable and effective alternative for water sludge treatment – a world first for a project of this scale.

Natural England strongly supports the reed bed project at Hanningfield reservoir because it will provide a sustainable, energy and carbon-efficient solution to the long-term disposal of water treatment sludge. It will also create a significant reed bed within a few hundred metres of Hanningfield reservoir which will be designated as a site of special scientific interest that will be of use in its own right for a variety of wildlife, including reed bed invertebrates, birds and foraging bats. It will also provide a regular water supply for a disused sludge lagoon within the site of special scientific interest which the company has recently restored very successfully as a wildlife-rich mosaic of reed bed, open water, wet scrub and woodland.

2011

Sustainability highlights People

Pe

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011

55

People People are our greatest asset and we want to be recognised as a great company to work for with high levels of satisfaction from our employees.

Pe

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011

5

6

Medium term goals Our medium term goals are company-wide. By working together to achieve each goal and constantly improve our performance, we will ultimately achieve our vision as the national leader.

People medium term goals

Company values are embedded

Great company to work for

Absence level of 2.85%

Performance management embedded

Management competency framework embedded

Succession planning in place

Efficient internal communications

Excellent employee relations

Flexible work force to respond to customer needs

Improve the diversity of our work force

Independent assessment of our health and safety practices

Employee Satisfaction Index of 81%

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5

7

People at a glance We report on our sustainability performance across many aspects of our business, below are the indicators which sum up our people 2010/11 annual performance and trend data. Throughout the Group we employ 3,031 people.

Average number of employees

Group business unit

06/07 07/08 08/09 09/10 10/11

NWL 2,554 2,890* 2,966 2,930 2,875

Water and waste water contracts

153 155 156 151 132

Other 333 25 25 24 24

Total employees

3,040 3,070 3,147 3,105 3,031

*headcount rise due to the absorption of AES, previously a group company, into Northumbrian Water Limited‟s main operations.

Pe

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5

8

Medium term goals

Company values are embedded We will live and breathe our values as they describe who we are, how we behave and what sort of business we aspire to be. How well our values are embedded will be assessed through performance review and employee surveys.

I am aware of NWL’s mission and values

% I believe the Company lives up to its values

%

Back Back

69 73 74 86 880

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010

56 60 63 76 750

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010

Pe

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011

5

9

Great company to work for We think this is a great place to work and we will measure this using independent assessments of how we perform against other UK organisations, including a position in The Times Best Companies.

Employee turnover Number Employees who would recommend the company as a great place to work

%

Back Back

Employees who say that NWL is a great organisation to work for

%

Back

8.2 7.4 6.4 6.5 5.8

10.3 10.3 10.4

9.2 9.4

0

2

4

6

8

10

12

06/07 07/08 08/09 09/10 10/11

Employee turnover rate

Industry Average 74 78 79 82 81

80 80

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010 2015

Employee survey results

Target

61 66 71 77 77

66

7176

82 82

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010 2015

Employee survey results

Target

Pe

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6

0

Absence level of 2.85% We aim to sustainably reduce absence to 2.85% through a number of health and wellbeing initiatives such as health surveillance, RehabWorks and NWL Support.

Total employees within Northumbrian Water Limited

Number Northumbrian Water Limited absence level

%

Back Back

2,554 2,890 2,966 2,930 2,8750

500

1,000

1,500

2,000

2,500

3,000

06/07* 07/08 08/09 09/10 10/113.01 3.25 2.94 3.18 3.10

3.00 2.952.85 2.85 2.85 2.85

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

06/07 07/08 08/09 09/10 10/11 11/12

Absence level

Target

Pe

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011

6

1

Performance management embedded We will train and support our people managers and ensure all our employees achieve and sustain high levels of performance.

Employees qualified to National Qualification Framework Level 2* or above

% Managers qualified to minimum National Qualification Framework Level 3**

%

* Equates to five GCSEs at grades A to C, a BTEC first diploma or City & Guilds Level 2.

**Equates to two or more A levels, BTEC Ordinary National Diploma (OND), City & Guilds Level 3.

Back Back

75.0 80.1 90.2 90.2

90 90 90

100

0

10

20

30

40

50

60

70

80

90

100

07/08 08/09 09/10 10/11 2020

NQF L2 qualified employees

Target70 70 74 74.5

0

10

20

30

40

50

60

70

80

90

100

07/08 08/09 09/10 10/11

NQF L3 qualified managers

Pe

op

le 2

011

6

2

Management competency framework embedded We will ensure that all people managers have practical support to achieve the appropriate management competencies. An integrated Management Development Framework has been developed and implemented to meet the needs of people managers at all levels across the business. The framework is structured to cover any training needs of current and future managers, helping develop leadership skills for all levels of management from potential managers to directors.

Back

Pe

op

le 2

011

6

3

Succession planning in place We will review our people requirements each year to ensure that we have proper succession plans and appropriate resource in the company to meet future needs. Plans are being developed to ensure that key skills and knowledge are retained within the company.

Pe

op

le 2

011

6

4

Efficient internal communications We want to ensure that at least 90% of our employees are satisfied with the communications they receive and will measure this in our annual employee survey.

The company keeps me well informed about its objectives and performance

% I feel Low Down* is a valuable source of information

%

Back *Low Down is our weekly internal newsletter, emailed or posted to company employees.

Back

Communication in my team is good

%

Back

73 77 74 81 790

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010

70 71 69 70 670

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010

67 73 70 73 700

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010

Pe

op

le 2

011

6

5

Excellent employee relations We will all work together to deliver the company vision, recognising the interests of employees through excellent employee relations.

Employees covered by the Negotiation and Consultation Group (NCG) or Personal Contract Consultation Group (PCCG)

% I feel my views are represented at the NCG (standard term contracts) or PCCG (personal contract holders)

%

Back Back

Our employee relations framework is effective

% It is easy for me to discuss my views with my representative

%

Back Back

100 100 100 100 1000

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 08/10 10/11

39 39 42 35 360

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010

46 46 51 45 430

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010

40 420

5

10

15

20

25

30

35

40

45

50

2009 2010

Pe

op

le 2

011

6

6

Flexible work force to respond to customer needs

We will continue to encourage departments to work together flexibly to deliver exceptional customer service. We want to meet our customers‟ expectations and maximise our SIM performance. The company is currently carrying out research to understand our customer‟s expectations and preferences, for when we contact them and when work is carried out, in order to better meet their needs. Although exceptional customer service is our priority we are also aware that employees want a work-life balance that suits their circumstances.

Pe

op

le 2

011

6

7

Improve the diversity of our work force We want to be recognised as a company people wish to work for, an employer who takes full advantage of the rich and diverse communities we serve and one that appreciates the abilities of current and potential employees. Our aim is to ensure that our workforce reflects the communities in which we operate. We are making progress but still have some way to go and therefore particularly welcome job applications from under represented groups.

Employee profile (overall workforce)

%

Back

73.6 71.4 71.1 70.2 69.7

26.4 28.6 28.9 29.8 30.3

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Female

Male

Pe

op

le 2

011

6

8

Independent assessment of our health and safety practices We will demonstrate our commitment to health and safety by achieving a gold award from the Royal Society for the Prevention of Accidents.

Lost Time Reportable accident rate per 1,000 employees

% Reportable accidents and incidents per 1,000 employees

%

Back Back

RIDDOR incidents - rate per 1,000 employees

Number

Back

8 6 6 5.7 4.1

8

65 5

4.3

0

1

2

3

4

5

6

7

8

9

06/07 07/08 08/09 09/10 10/11

performance

Target 12.9 11.5 10.3 10.4 90

2

4

6

8

10

12

14

06/07 07/08 08/09 09/10 10/11

15.7 11.31 5.05 8.4 6.140

2

4

6

8

10

12

14

16

06/07 07/08 08/09 09/10 10/11

Pe

op

le 2

011

6

9

Employee Satisfaction Index of 81% We want to achieve and sustain an Employee Satisfaction Index (ESI) of 81%. This is a key measure in our annual employee survey which helps us to understand how people feel about working for the business.

Engagement and Satisfaction Index (ESI) results

% Employee Survey response rate

%

Back Back

68 73 73 77 76

72

75

77

81 81

60

65

70

75

80

85

2006 2007 2008 2009 2010 2015

ESI score

Target 56 45 57 71 750

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010

Pe

op

le 2

011

7

0

Additional information

Employee participation in My benefits*

% Employees who have received the health screening and fitness standards programme

Number

* launched to employees in July 2005 offering a range of flexible money saving initiatives, employees are automatically entitled to a number of „core‟ benefits and can also choose from a range of discounted or tax efficient offers.

Back

Back

23 27 62 72 73

25

6673

0

10

20

30

40

50

60

70

80

06/07 07/08 08/09 09/10 10/11

Employees who participate in the scheme

Target

1,700 1,700 1700 2,200 2,2000

500

1,000

1,500

2,000

2,500

06/07 07/08 08/09 09/10 10/11

Pe

op

le 2

011

7

1

Case study Growing in water – investing in our people As a company we are committed to investing in training and development to ensure that our people are competent and safe in their current roles, to support them to develop skills and knowledge to help take the business forward and, where people are career orientated, to help them develop for future roles. We have many examples of our people in the business who have developed their career within NWL.

Tony Erskine, our customer manager, joined us aged 17 on the young person‟s development programme, a youth training scheme, and began studying for a higher national certificate qualification. He has just completed his final year of NWL‟s bespoke BA (Hons) in Leadership and Management and graduated in July.

Tony said: “The BA course is the best thing that I have ever done. It has been a real eye opener and enabled me to learn new skills, get different perspectives and learn from others. It‟s been a massive benefit to me as a manager and I believe makes me a more effective leader. It‟s been a lot of hard work but I have gained a lot from it and so will the company”.

Chris Loftus, leakage assistant, was unemployed and not sure of what he wanted to do with his life when he saw the poster advertising The Prince‟s Trust Get into Water programme in the window of his local Jobcentre. He found his age and lack of experience a real hindrance until he joined us on a three week course designed to provide unemployed 16-25 year olds with the opportunity to learn about the water industry and get some valuable hands-on work experience, before hopefully moving into employment. He has now been with NWL for three years and has become a young ambassador for the Princes Trust while receiving the Essex Young Achiever of the Year Award. Kathryn Waugh, distribution operations controller, joined the accelerated graduate development programme in 2001 following her degree in physical geography. She undertook a series of strategic projects and business support placements to develop her knowledge of business processes and gain a broad overview of the company and its operations. After further development roles in water and waste water works management, she has now taken a senior role in operations. Kathryn said: “I find working with people to make positive improvements to the operations and maintenance side of the business very rewarding. I really enjoy my job and working for NWL.”

2011

Sustainability highlights Environment

En

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nm

en

t 20

11

73

Environment The environment is critical to us and our stakeholders and we acknowledge our responsibilities to protect and enhance the natural environment. Our carbon management plan will help reduce our carbon footprint and we will adopt good environmental practice in all aspects of our activity.

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74

Policy

Northumbrian Water Limited (NWL) is founded on water and environmental engineering and much of what we do influences the environment. We recognise the impact we have on the environment and in everything we do, we aim to protect and improve the environment for the benefit of all. We are committed to protecting and enhancing the environment as a business priority and promoting awareness of environmental issues throughout the business. We will work ethically to achieve this by:

Complying with relevant legislation and other applicable requirements in all of our activities and seeking to continually improve performance and achieve best practice standards.

Providing appropriate systems and procedures to plan, develop, implement, monitor and review the environmental policy and ensure appropriate resources are available to maintain, monitor and, where necessary, improve environmental performance.

Requiring contractors and suppliers to carry out their activities to standards that at least match those of NWL and that their environmental performance is monitored closely.

Demonstrating effective communication and consultation on environmental matters at every level of the business.

Providing appropriate environmental information, instruction, training and supervision to ensure that environmental requirements are understood throughout the business.

Striving to achieve our environmental medium term goals, set out in our visions in the areas of:

Pursuing our comprehensive water efficiency strategy

Enhancing biodiversity on our land holdings

Ensuring all sewage works meet their consents

Increasing our use of energy from renewable sources

Ensuring all bathing waters in our region meet EU standards

Using all recycled material as backfill on street works

Reducing leakage

Reducing our carbon footprint

Aiming to prevent pollution incident

Ensuring that environmental indicators are reported to the company management team each month and feature prominently in corporate communications, including the Annual Report.

We annually review the environment policy and the way it operates, or more frequently in the case of significant change to the nature or scope of environmental risk in the business.

En

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75

Medium term goals Our medium term goals are company-wide. By working together to achieve each goal and constantly improve our performance, we will ultimately achieve our vision as the national leader.

Environment medium term goals

Meet our water efficiency targets.

Enhance biodiversity on our land holdings.

All sewage works meet their consents

Increased use of energy from renewable sources

90% of our bathing waters to be at least EU guideline quality (good)

100% of backfill on street works to be recycled material

Reduced leakage

Reduce our carbon footprint

Pollution incidents to be no more than 75 per year

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11

76

Environment at a glance

We report on our sustainability performance across many aspects of our business, below are the indicators that sum up our environmental annual performance 2010/11 and trend data at a glance.

Medium term goals

Meet our water efficiency targets

We will reduce water consumption by at least one litre per property per day each year by working with our customers to educate and encourage participation in water saving activities and changing behaviours.

Per capita consumption Northumbrian Water

Ml/d Per capita consumption Essex & Suffolk Water

Ml/d

Back Back

Water distribution input Northumbrian Water

Ml/d Water distribution input Essex & Suffolk

Ml/d

Back

Back

Water efficiency performance

Ml/d

140.3

128.9 129.5

133.0

136.6

151.1

147.0

141.7

144.7146.3

115

120

125

130

135

140

145

150

155

06/07 07/08 08/09 09/10 10/11

measured household exc supply pipe

leakage

unmeasured household exc supply pipe

leakage

150.7

144.5143.4

147.0 146.0

160.1162.8 163.4 163.6

160.2

130

135

140

145

150

155

160

165

170

05/06 06/07 07/08 08/09 09/10

measured household exc supply pipe leakage

unmeasured household exc supply pipe leakag

788.8

776.8

757.6

750.1

752.8

735.6732.2

718.8

721.6

715.5

697.0

688.1

710.0

717.9

620

640

660

680

700

720

740

760

780

800

97/98 99/00 01/02 03/04 05/06 07/08 09/10

491.5

479.8477.5

465.8

466.0

465.2

481.4

464.5

468.0

453.6

457.6

451.3

455.1

456.0

430

440

450

460

470

480

490

500

97/98 99/00 01/02 03/04 05/06 07/08 09/10

1.71 1.77

1.12 0.74

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Northumbrian Water Essex & Suffolk Water

Total assumed savings

Target

En

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11

77

Enhance biodiversity on our landholdings We will ensure that the impact of our operations on the natural environment is positive and will protect the natural habitats on our sites and where appropriate, encourage a wider biodiversity.

Condition of SSSI areas on Northumbrian Water landholdings

Ml/d Condition of SSSI areas on Essex & Suffolk Water landholdings

%

07/08 08/09 09/10 10/11 07/08 08/09 09/10 10/11

Favourable 6.5 6.8 14.3 16.8 Favourable 77.2 81.3 81.3 85.0

Unfavourable recovering

74.8 87.3 85.7 83.2 Unfavourable recovering

7.1 9.5 12.3 12.3

Unfavourable no change

12.5 0 0 0 Unfavourable no change

15.4 9.2 6.4 2.7

Unfavourable declining

6.3 5.9 0 0 Unfavourable declining

0.2 0 0 0

Part destroyed

0 0 0 0 Part destroyed

0 0 0 0

Back Back

6.5 6.8 14.3 16.8

74.8 87.3

85.7 83.2

12.5

6.3 5.9

0

10

20

30

40

50

60

70

80

90

100

07/08 08/09 09/10 10/11

Part destroyed

Unfavourable declining

Unfavourable no change

Unfavourable recovering

Favourable

77.2 81.3 81.3 85.0

7.19.5 12.3 12.315.49.2 6.4

2.70.2

0

10

20

30

40

50

60

70

80

90

100

07/08 08/09 09/10 10/11

Part destroyed

Unfavourable declining

Unfavourable no change

Unfavourable recovering

Favourable

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78

All sewage treatment works meet their consents

We will retain our leading status and ensure that all sewage works meet their consents by improved knowledge of asset performance and good workforce management, reinforced with careful capital management.

Sewage treatment works compliant with numerical consents

%

Back

99.8 98.4 99.7 99.7 100

100 100 99.7 99.7 100 100

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11 11/12

Performance

Target

En

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79

Increase energy use from renewable sources We aim to protect the environment and reduce business costs by producing 20% of the energy we use in the business from renewable sources, such as sludge digestion, hydro electric stations and wind turbines.

Renewable energy use* % Northumbrian Water Limited total net energy use*

GWh

Back Back

Renewable energy generated*

GWh Energy consumption per megalitre of water and sewage treated*

kWh/Ml

Back Back

*Please note that the figures have been calculated for 2010/11 and recalculated for previous years using an enhanced methodology to ensure that they are even more comple and robust.

3.4 4.9 6.0 7.9

20

0

2

4

6

8

10

12

14

16

18

20

07/08 08/09 09/10 10/11 2020

renewable energy used

Target 613.3 532.6 590.6 480.80

100

200

300

400

500

600

700

07/08 08/09 09/10 10/11

21.1 25.9 35.4 37.80

5

10

15

20

25

30

35

40

07/08 08/09 09/10 10/11

495.8 490.0 508.3 485.2

1,805.1 1,462.8 1,800.5 1,110.9

0

500

1,000

1,500

2,000

2,500

07/08 08/09 09/10 10/11

Sewerage treated

Water treated

En

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80

90% of bathing waters to be at least EU guideline quality (good) We will play our part in ensuring that 90% of our bathing waters meet EU guideline quality by monitoring the performance of our sewage treatment works and investing in the sewer network.

Bathing waters passing Mandatory Standard

% Bathing water passing Guideline Standard

%

Saltburn Pier failed to meet the required sample standards. A two year detailed investigation is now under way, in cooperation with the Environment Agency, to determine the cause of the fluctuating quality of the bathing water which has seen variability since 2005.

Back Back

100 100 100 100 97

100 100 100 100 100 100

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011

Bathing waters passing standard

Target

88 82 61 88 82

90

0

10

20

30

40

50

60

70

80

90

100

2006 2007 2008 2009 2010 2011

Bathing waters passing standard

Target

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81

100% of backfill on street works to be recycled material We aim to use only recycled materials when backfilling our street work excavations. Work has begun to establish a baseline in order to develop staggered targets.

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82

Reduce leakage We want to keep leakage as low as possible and meet our agreed targets.

Operational leakage

Northumbrian Water

Ml/d Operational leakage Essex & Suffolk Water

Ml/d

Exceeding the target was entirely caused by the worst winter in the region in 120 years. Leakage levels quickly rose to unprecedented levels in December and although our response was rapid and thorough, the situation could not be recovered in the time that remained in the reporting year.

Back Back

145.9 136.2 149.8 155.7 158

156154 153 153

150

147

125

130

135

140

145

150

155

160

06/07 07/08 08/09 09/10 10/11 11/12

Measured leakage rate

Ofwat Leakage target

68.0 68.3 66.8 67.4 65.1

68.5

67.9

67.3 66.0

66.0 66.0

63

64

65

66

67

68

69

06/07 07/08 08/09 09/10 10/11 11/12

Measured leakage rate

Ofwat Leakage target

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83

Reduce our carbon footprint We will deliver the range of targets stated in our Carbon Management Plan, including reducing our carbon emissions by 35% by 2020.

Total greenhouse

gas emissions (GHG)

Ktonnes CO2e

Operational GHG emissions per Ml of sewage treated

kgCO2e /Ml

Back Back

Operational GHG emissions per Ml

of treated water

kgCO2e /Ml

Operational GHG emissions per Ml of sewage treated

kgCO2e /Ml

*Industry average figure not yet available

*Industry average figure not yet available

Back Back

Employee travel

Km (1,000)

Emissions from employee travel

kgCO2e (1,000)

Back Back

302.4 281.7 256.3 248.10

50

100

150

200

250

300

350

07/08 08/09 09/10 10/11

892 834698 638

258261

269259

0

200

400

600

800

1,000

1,200

07/08 08/09 09/10 10/11

Water service emissions per Ml

Sewerage service emissions per Ml

258 261 269 259

276300

340

0

50

100

150

200

250

300

350

07/08 08/09 09/10 10/11*

Northumbrian Water Limited

Industry Average 892 834 698 638

693750

700

0

100

200

300

400

500

600

700

800

900

07/08 08/09 09/10 10/11*

Northumbrian Water Limited

Industry Average

894687 617 552

980

1,568

7271,003

3,706

2,759 2,875 2,990

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

07/08 08/09 09/10 10/11

Air

Rail

Fleet 153 131 107 10459 94 44 57

9,691

7,2347,657 7,962

0

2,000

4,000

6,000

8,000

10,000

12,000

07/08 08/09 09/10 10/11

Air

Rail

Fleet emissions

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84

Pollution incidents to be no more than 75 per year We will improve our environmental performance through better management of the sewer network, using monitoring data to spot problems and fix them before a pollution incident occurs.

Pollution incidents Number Pollution incidents by category

Number

Back

Category 1 represents a persistent,

extensive, major impact on the

environment.

Category 2 represents significant

damage to the aquatic ecosystem

Category 3 represents minor damage

to water quality and ecosystems.

Back

142 119 94 114 101

181

116

9689

10288

0

20

40

60

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2011

Pollution incidents

Target131 105 89 106 94

12

11

3

5

5

1

1

2

3

2

0

20

40

60

80

100

120

140

160

2006 2007 2008 2009 2010

Category 1

Category 2

Category 3

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85

Additional information

DWI Mean Zonal Compliance (Northumbrian Water)

% DWI Mean Zonal Compliance (Essex & Suffolk Water)

%

Back Back

DWI Operational performance index (Northumbrian Water)

% DWI Operational performance index (Essex & Suffolk Water)

%

Back Back

99.96 99.94 99.92 99.91 99.95

99.90 99.90 99.85

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

DWI Mean Zonal Compliance

Target99.97 99.98 99.99 99.82 99.94

99.98 99.98 99.95

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

DWI Mean Zonal Compliance

Target

99.84 99.66 99.67 99.58 99.84

99.65 99.65 99.65

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

DWI Operational performance index

Target

99.99 99.98 99.98 99.97 99.97

99.98 99.98 99.98

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

DWI Operational performance index

Target

Domestic Households who are metered (Northumbrian Water Limited)

% Domestic Households who are metered

%

Back Back

24.7 27.5 30.3 32.1 33.70

5

10

15

20

25

30

35

40

06/07 07/08 08/09 09/10 10/11

36.940.2

42.744.7

48.5

15.618.3

20.7 22.5 23.3

52.4 54.3 56.2 58.060.1

0

10

20

30

40

50

60

70

06/07 07/08 08/09 09/10 10/11

Essex

North East

Suffolk

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86

Distribution Maintenance Index (Northumbrian Water)

% Distribution Maintenance Index (Essex & Suffolk Water)

%

Back Back

Properties flooded in the year

(hydraulic overloading)

Number Properties flooded in the year (other causes)

Number

Back Back

Properties removed from the flooding register as a result of NWL activities

% Schemes completed that alleviate internal flooding

%

Back Back

99.69 99.47 99.52 99.21 99.70

99.70 99.70 99.70

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Distribution Maintenance Index

Target 100.00 99.96 99.92 99.94 99.94

99.80 99.85 99.85

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Distribution Maintenance Index

Target

130 523 543 692 1300

100

200

300

400

500

600

700

800

06/07 07/08 08/09 09/10 10/11

183 290 286 281 253

150 150 150 150 150

0

50

100

150

200

250

300

06/07 07/08 08/09 09/10 10/11

Properties flooded

Target

129 156 111 277 178

250

270

0

50

100

150

200

250

300

06/07 07/08 08/09 09/10 10/11 11/12

Properties removed from flooding registaer

Target20 18 20 34 43

0

5

10

15

20

25

30

35

40

45

06/07 07/08 08/09 09/10 10/11

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87

Waste and Recycling

Investment delivery project waste disposal routes

% Office waste disposal route

%

Back Back

Waste water treatment sludge disposal route

Ttds Waste water treatment sludge disposal route

%

Included grit and screenings, we are investigating recycling options for this waste stream. The drop in sludge disposed can be accounted for by the introduction of Advanced anaerobic digestion (AAD) to our treatment process. Ttds – thousands tones of dry solids

Back Back

Water treatment sludge disposal route

Ttds Water treatment sludge disposal route

%

*Waste water treatment works

*Waste water treatment works

Back Back

14.8 12.5

85.2 87.5

0

10

20

30

40

50

60

70

80

90

100

09/10 10/11

Beneficial reused or recycled

Landfill

1,685.9

1,270.81,076.2

136.3

269.9

331.1

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

06/07 07/08 08/09

Beneficial reused or recycled

Landfill

5.3 6.1 5.7 6.8 5.1

23.813.5

6.4 6.2

2.8

22 1.7

29.1

45.856.0 67.6 62.9

12.2

0

10

20

30

40

50

60

70

80

90

06/07 07/08 08/09 09/10 10/11

To farmland (Advanced)

To farmland (conventional)

Other

Landfill 6.8 7.9 7.0 8.7 10.993.2 92.1 93.0 91.3 89.1

0

10

20

30

40

50

60

70

80

90

100

06/07 07/08 08/09 09/10 10/11

Beneficial reused or recycled

Landfill

0.887.80 2.90

10.96

15.40

12.46

0.70

0

2

4

6

8

10

12

14

16

18

08/09 09/10 10/11

Transferred to a WWTW*

Beneficial reused or recycled

Landfill

Site storage6.6

41.6

15.3

58.4

81.1 93.4

3.7

0

10

20

30

40

50

60

70

80

90

100

08/09 09/10 10/11

Transferred to a WWTW*

Beneficial reused or recycled

Landfill

Site storage

En

viro

nm

en

t 20

11

88

Case study Good progress for the Abberton Scheme

Essex is the driest county in the UK. In a dry year demand already outstrips supply and due to population rise this situation is expected to get worse. After 17 years in the planning the £150

million Abberton construction scheme to help secure water supply to 1.5 million customers in Essex made good progress in its first year. The reservoir, near Colchester, will be enlarged by 58% with its footprint extended by 40%, and the increased capacity will be in service in 2014. Over the last year, significant progress has been made and two important milestones have now been reached. Water is now flowing into the reservoir via the newly completed reservoir inlet structure at Broadmeadows and work has begun on the construction of two major raw water

pipeline routes. These 1.2 metre diameter, 16 kilometre long, steel pipelines will transfer water from the River Stour at Wormingford to Abberton. Abberton is a site of international environmental significance, designated under the Ramsar convention on wetlands. In designing our proposals, working closely with Natural England, the RSPB and Essex Wildlife Trust, we have gone beyond what is required to not only maintain the environmental significance of the site but to enhance it. The new reservoir will have existing concrete edging removed, will include more marginal shallow waters, as well as a new re-sited visitor centre and an extensive wetland area at the western end of the reservoir. The new proposals will improve biodiversity as well as enhance the amenities for visitors.

2011

Sustainability highlights Communities

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Communities Communities are important to us and we want to build strong relationships with the communities we serve. We will ensure that corporate responsibility is embedded in performance management and that we benchmark ourselves against the best companies.

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Policy

We have a continuing commitment to support projects and organisations within the geographic areas in which we work and to contribute to the long term sustainability not only of our business, but also of the environment, society and communities we serve. Our community activities focus on:

Investment in our communities

Participation in our communities

Educating our communities about their environment

Supporting healthy communities

Supporting developing communities through WaterAid We provide community support by dedicating expertise, employee time, money and facilities to projects. Increasingly we are also focussed on building relationships and developing genuine partnerships to tackle lasting change in communities rather than simply giving cash grants and sponsorship. Over many years, we have donated at least 1% of our pre-tax profits (through cash, employee time and expertise, or use of our facilities) to projects which benefit the communities we serve. We reported this publicly as part of BITC’s Per Cent Club standard and, although this standard ended in October 2007, we have maintained this commitment. The percentage of pre-tax profit varies depending on the profits of the company.

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Medium term goals Our medium term goals are company-wide. By working together to achieve each goal and constantly improve our performance, we ultimately achieve our vision as the national leader.

Communities medium term goals

Corporate responsibility embedded in performance management

50% of people involved in community activity by March 2013

Independent recognition through FTSE4Good

Business in the community Platinum Plus status

Community support

Investment in our communities

Representation on leading national and regional bodies

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Communities at a glance

We report on our sustainability performance across many aspects of our business, below are a few indicators which sum up our community 2010/11 annual performance and trend data at a glance.

Medium term goals Corporate responsibility embedded in performance management We will ensure that corporate responsibility is part of the recruitment process, highlighted during formal inductions and assessed against a Standard of Performance for specific Key Result Areas for all individuals. During 2010/11 this was formally written into our appraisal system so that each employee is now biannually assessed against our vision and values.

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50% of people involved in community activity

We will increase participation in voluntary community initiatives, such as ‘Just an hour’, so that at least half of all employees are actively taking part.

Employee participation in ‘Just an hour’

% Time volunteered under ‘Just an hour’

Hours

Back Back

16.3 23.9 22.8 26.1 27.4

25

30

40

50

0

10

20

30

40

50

60

06/07 07/08 08/09 09/10 10/11 11/12 12/13

Employee participation rate

Target 3,640 5,747 6,930 7,890 7,674

3,750

6,300

7,0008,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

06/07 07/08 08/09 09/10 10/11

Number of hours given

Target

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20

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95

Independent recognition through FTSE4Good We will ensure that we meet the needs of the London Stock Exchange and be recognised for our corporate responsibility. Northumbrian Water Group, of which Northumbrian Water Limited forms 93.4% by turnover, continues to be a member of the FTSE4Good Index, the responsible investment index calculated by global index provider FTSE Group. This year FTSE4Good introduced new environmental, social and governance (ESG) ratings, a new service for FTSE’s investor clients. The ratings use FTSE4Good index’s inclusion criteria as a framework to assign ESG scores to approximately 2,400 companies globally.

Overall ESG rating score*

100

Pillar score* Environment (9) Social (10) Governance (10)

Theme score*

Environmental Management

Climate change

Human and

labour rights

Supply chain labour

standards

Countering bribery

**Corporate Governance

(4) (5) (5) (na) (na) (5)

*For the theme score 5 is best practice. For the pillar score 10 is the maximum. The overall ESG score is 100 is the highest possible. **Although corporate governance is included in the ratings, it is not one of the inclusion requirements for the index at the moment. Back

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Business in the Community Platinum Plus status

We want to maintain our Platinum Plus status with Business in the Community as independent accreditation of our corporate responsibility practice.

Corporate Responsibility Index score

%

Northumbrian Water Group were one of the first seven companies to achieve the standard in 2009. In June 2011 BITC published its Responsible Business Supplement in the Financial Times confirming that NWG has retained its platinum plus status. Companies who achieve platinum ranking, by scoring 95% or above in the Corporate Responsibility Index, are eligible to apply for platinum plus status. This is an additional stage of the CR index process which assesses the connectivity between sustainability and commercial strategy. Companies are asked for evidence that sustainable thinking underpins their commercial decision making and senior managers are challenged and evaluated on the connections between sustainability and commercial strategy.

Back

93 98 98 98 98

95 95

88

90

92

94

96

98

100

2006 2007 2008 2009 2011

Index score

Target

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Community support We want to be recognised as an important part of the communities in which we operate.

People reached through ‘Water for health’ partnerships

Number Community funds levered through Northumbrian Water Limited contribution

£

Back Back

Community Foundations Grants awarded to community projects

£ Community Foundations Grants awarded to community projects

Number

Back Back

Community Foundations Grants awarded to environmental projects

£ Community Foundations Grants awarded to environmental projects

Number

Back Back

64,902 61,370 96,0240

20,000

40,000

60,000

80,000

100,000

120,000

08/09 09/10 10/11

50,000 56,000 50,000

80,000

2,000,000

600,000

0

500,000

1,000,000

1,500,000

2,000,000

08/09 09/10 10/11

Financial support given to 'Water for health' partnerships

Levered funds from other sources gained by 'Water for health' partners

6,609 4,282 3,768 3,151 4,322

6,8437,988 11,403 3,695

6,761

6,3996,786

5,989

4,988

6,730

7,251 8,1525,702

4,505

4,700

3,967 910 1,000

2,405

2,300

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

06/07 07/08 08/09 09/10 10/11

Abberton Scheme

Durham

Essex and Suffolk

Teeside

Tyne and Wear and Northumberland

21 15 11 10 6

12

1415

4 8

1211

9

7 6

2220

15

7 8

8

2

1

2 3

0

25

50

75

06/07 07/08 08/09 09/10 10/11

Abberton Scheme

Durham

Essex and Suffolk

Teeside

Tyne and Wear and Northumberland

£3,254 £3,000 £4,000 £3,559 £563

£1,000

£5,000 £5,125

£6,198

£11,480

£6,335

£5,953

£3,096£4,700

£0

£2,000

£4,000

£6,000

£8,000

£10,000

£12,000

£14,000

£16,000

06/07 07/08 08/09 09/10 10/11

Durham

Teeside

Tyne and Wear and Northumberland

87

9

3

1

1

1

6

7

43

2 45

0

2

4

6

8

10

12

14

06/07 07/08 08/09 09/10 10/11

Durham

Teeside

Tyne and Wear and Northumberland

Co

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20

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98

'Tap into' bottled tap water donated to community and sporting events by Northumbrian Water Limited

Number Organisations given financial and in-kind support

Number

Back Back

118,792 121,710 129,550 100,000 116,0000

20,000

40,000

60,000

80,000

100,000

120,000

140,000

06/07 07/08 08/09 09/10 10/11*

500 550 700 8700

100

200

300

400

500

600

700

800

900

1,000

07/08 08/09 09/10 10/11

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20

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99

Investment in our community We want to ensure that at least 1% of our pre-tax profit is re-invested in our communities through dedicating expertise, employee time, money and facilities.

Community giving as a percentage of pre-tax profits*

Number Value of community giving*

£ (millions)

*includes employee time, cash donations, gifts in kind and use of facilities

*includes employee time, cash donations, gifts in kind and use of facilities

Back Back

‘Water for health’ - mains fed water coolers installed under the scheme

Number ‘Water for health’ - funding given to provide free mains fed water coolers to schools and community groups

£

Back Back

1.17 1.12 1.11 1.16 1.11

1 1 1 1 1 1

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

06/07 07/08 08/09 09/10 10/11 11/12

Community giving as a percentage of pre-tax profits

Target

1.73 1.91 1.69 1.98 2.010.0

0.5

1.0

1.5

2.0

2.5

06/07 07/08 08/09 09/10 10/11

101 40 22 86 62

4045

45

45

0

20

40

60

80

100

120

06/07 07/08 08/09 09/10 10/11

mains fed water

coolers installed

Target

200,000225,000

244,000

306,000

341,854

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

06/07 07/08 08/09 09/10 10/11

Co

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100

Representation on leading national and regional bodies We will ensure that the company is represented at the right level on appropriate bodies so we are able to make a positive contribution to shared objectives and influence the future agenda.

We are currently undertaking a stakeholder mapping exercise in order to prioritize stakeholder engagement opportunities. Alongside this we are working with our senior managers to support them to take up relevant external positions through our ‘Just an hour’ employee volunteering programme. Many of our senior managers are already representation on leading national and regional bodies, for instance our CEO represents the water industry on the Government’s Green Economy Council discussing how government and industry can work together to support the transition to a green, low carbon economy and minimise the costs for business while maximising the opportunities, whilst our director of corporate affairs is the current president of the North East Chamber of Commerce and chair of the Northumbrian WaterAid Fundraising Committee.

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101

Additional information

Money raised by WaterAid employee fundraising committee

£ (millions)

Visitors to Healthworks

Number

The Northumbrian Water comittee has raised over £5 million since 1996.

Back Back

Money raised for charity through the Care for Safety scheme

£ Cash donations to charity by Northumbrian Water Limited

£

Back

Back

Students achieving at least five A*-C overall

% Students achieving at least five A*-C including English and Math

%

Back Back

85.2 149.4 226.6 167.3 170.00.0

50.0

100.0

150.0

200.0

250.0

06/07 07/08 08/09 09/10 10/11

10,000 14,232 20,0590

5,000

10,000

15,000

20,000

25,000

07/08 08/09 09/10

£68,740

£141,010

£190,900

£243,555

£293,160

£309,560

£0

£50,000

£100,000

£150,000

£200,000

£250,000

£300,000

£350,000

05/06 06/07 07/08 08/09 09/10 10/11

128,555 134,702 134,415 156,517 151,6330

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

06/07 07/08 08/09 09/10 10/11

43 5429 24 260

10

20

30

40

50

60

2007 2008 2009 2010 2011

Castle View Enterprise Academy

Castle View School (closed)

86 9443 48 630

10

20

30

40

50

60

70

80

90

100

2007 2008 2009 2010 2011

Castle View Enterprise Academy

Castle View School (closed)

Co

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102

Case study A* performance at Castle View

Castle View Enterprise Academy, in Sunderland, completed its first year of operations during the year. NWL is the lead sponsor and wanted to create a centre of excellence with a clear focus on raising standards of academic performance to enable every student to achieve their personal best in all areas of academy life within a safe, secure and stable environment. NWL formed a new trust board to govern the school, recruited an inspirational head teacher and helped her to form a new leadership team, design an engaging curriculum and implement a set of new policies which would fundamentally change and improve school life for the students. During the first year, Castle View Enterprise Academy students achieved 43% A*– Cs in GCSEs English and Maths (up from 26% in the old Castle View School) and 86% five or more GCSEs A*–Cs (up from 63%). Persistent

absences decreased from 10%, in the old Castle View School, to 6.3% in the new academy’s first year of operation. In March 2011, the new academy undertook Ofsted assessment and from being a failing school previously is now a school making good progress. Indeed, 16 students at Castle View Enterprise Academy have gained amongst the highest grades possible in the January 2011 GCSE Mathematics examinations – six months ahead of schedule. Eight of the 16 gained grade A* and the other eight gained grade A. In addition to the excellent teaching in the academy and after school tutorials, these more able students were also coached by one of our graduate trainees, David Bullin, who has a maths degree. David has given his time under our employee volunteering scheme, ‘Just an hour’, on Wednesdays after school and more recently on Saturday morning.

www.nwg.co.uk

Northumbrian Water Group plc

Northumbria HouseAbbey RoadPity MeDurham DH1 5FJ

Tel: 0191 301 6765Fax: 0191 301 6761Email: cr@nwl.co.uk

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