Appendix to the directors’ report and business review

Group financial KPIs

Gearing to RCV

Definition and calculation: The ratio of Group net debt to NWL’s Regulatory Capital Value (RCV) plus a pro forma RCV for the Kielder securitisation and the PFI contracts (at the level of associated debt included in the Group’s net debt relating to those assets). The NWL RCV represents the total capital value of the appointed water and sewerage business on which The Water Services Regulation Authority (Ofwat) allows a rate of return at price reviews based on its view of the cost of capital.

Purpose: The RCV generates most of the revenue stream of the Group and regulatory gearing is an important factor in credit ratings.

Source of underlying data: NWL’s RCV is calculated by Ofwat and published each year. Ofwat also publishes anticipated values up to five years ahead, based on its last price determination. Group net debt is disclosed in the audited financial statements.

Cash interest cover

Definition and calculation: Cash generated from operations less tax divided by net interest paid.

Purpose: Measures the ability of the Group to service its debt.

Source of underlying data: Audited financial statements.

Cash flow to net debt

Definition and calculation: Cash generated from operations less tax paid divided by net debt.

Purpose: Indicates the Group’s ability to reduce debt in the absence of need for additional investment, without resorting to asset disposal.

Source of underlying data: Audited financial statements.

NWL financial KPIs

Regulatory gearing

Definition and calculation: The ratio of NWL net debt (including borrowings to group subsidiaries) to NWL’s RCV. The RCV represents the total capital value of the appointed water and sewerage business on which Ofwat allows a rate of return at price reviews based on its view of the cost of capital.

Purpose: The RCV generates most of the revenue stream of the Group and regulatory gearing is an important factor in credit ratings.

Source of underlying data: NWL’s RCV is calculated by Ofwat and published each year. Ofwat also publishes anticipated values up to five years ahead, based on its last price determination. NWL’s net debt can be found in the audited regulatory accounts and Ofwat annual reports on financial performance.

NWL non-financial KPIs

Water

Drinking water quality

Definition and calculation: Compliance with drinking water regulations as monitored by the Drinking Water Inspectorate (DWI).

Purpose: To monitor drinking water quality.

Source of underlying data: Samples recorded by NWL and audited by the DWI.

Environment

Sewage treatment works

Definition and calculation: Percentage of population equivalent served by non-compliant works failing Look Up Tables’ consents.

Purpose: To monitor the performance of NWL’s sewage treatment works and their impact on the environment.

Source of underlying data: Information recorded by NWL and the Environment Agency (EA) and reported on by the latter.