Yorkshire cuts bonuses despite return to profit

Yorkshire Water cut executive bonuses to reflect unsatisfactory performance this year despite a jump in profits to £723 million.

The company’s finances were back in the black from a loss of £368.6 million in 2021/22 and rocky financial resilience that led to shareholders injecting £500 million into the organisation.

The remuneration committee opted to award chief executive Nicola Shaw just 47% of the available bonus for the year to reflect performance. Shaw however did not accept the bonus, as she had previously pledged. 

In its annual report, the remuneration committee said the decision to award a 47.6% bonus reflected the fact that “the business had not delivered in certain areas”. Its report said the committee “does not reward under-performance”.

Pre-tax profit for 2022/23 was £723.3 million, up from £368.6 million loss recorded the previous year. In 2021 it made profit of £11.1 million.

This year’s profit corresponds to an adjusted loss of £54.2 million.

The company said the profit jump was attributable to “a significant decrease in the net derivative liability position, mainly due to the financial markets anticipating higher interest rates, leading to overall favourable fair value movements of £797.9 million”.

Yorkshire raised £500 million through bonds in February, which also bolstered its finances.

The company’s financial resilience has been in the spotlight, particularly the repayment of an intercompany loan of £940 million, which Ofwat ordered to be repaid as soon as possible. The first instalment of £400 million was paid last month.

Gearing was lowered by 1.1% to 72.3%, which keeps Yorkshire in the upper end of gearing for the sector.

Meanwhile, revenue increased year-on-year by £26.2 million due to inflationary price rises. But operational costs likewise rose £32 million to £908 million.

People and remuneration committee chair Wendy Barnes said the company was keen to restore the “erosion of trust and confidence” and acknowledges the role executive remuneration plays in that.

She explained the board would continue to review its processes to link to company performance. Ofwat has increased its pressure for boards to link executive pay and bonuses to performance, particularly against environmental metrics.

For the year, Yorkshire met half its performance commitments, resulting in more than £30 million of penalties and around £10 million of rewards. The net penalty was £22.7 million, up from £15.2 million in 2022.

Stronger areas included regaining a third star on the Environment Agency’s Environmental Performance Assessment; reducing pollution incidents, strong leakage performance and the company’s best-ever health and safety performance.

This year, Shaw’s total remuneration was £767,000, which is the lowest a chief executive has been paid at Yorkshire in the past decade. Last year, former chief exec Liz Barber’s total remuneration was £1.4 million.

For the coming year, her base salary is £585,480 while chief financial officer Paul Inman who joined this spring will receive £380,000.

Shaw’s salary rose 2% for the year, while total remuneration for all employees was up 0.5% from 2022. This includes the impact of redundancies made during the year with staff headcount down by 100 people.

The report showed the dry weather last summer – with some parts of Yorkshire receiving the lowest rainfall since records began – added around £25 million of atypical costs to fix damaged pipes

It underperformed on customer service for household and developer services. Yorkshire ranked 11th in the C-Mex table and 17th for D-Mex.