Annual Report 2016 | Page 39

Annual Report 2016 impact of better than expected free cash generation in the year. While the dividend policy for South Staffs Water allows dividends to be paid up to 77% of net debt/RAV the expectation for this ratio is in the region of 66%. The Group and South Staffs Water have maintained, and continue to forecast to maintain, significant headroom in respect of all borrowing covenants. Standard and Poor’s continues to rate South Staffs Water as BBB+, well within investment grade. At 31 March 2016, the Group had available £31.0m of undrawn bank facilities (2014: £42.7m), in addition to its cash balances of £13.8m (2015: £4.7m) providing significant liquidity headroom of £44.8m (2015: £47.4m). Risk management The Directors acknowledge that risks exist in all businesses with the Group’s approach to risk reflecting its status as a Group comprising a regulated business with a long-term water supply license and also nonregulated activities operating in regulated markets. As part of its normal activities, the Board of Directors, assisted by the senior management team, regularly carry out robust assessments of the principal risks facing the Group, including those risks that have the potential to threaten individual business models, future operational or financial performance, solvency and liquidity. There is regular monitoring of the Group’s risk management and material internal control systems to review their continuing relevance to the Group’s businesses and their effectiveness and to ensure that appropriate risk management activities are in place or are planned to mitigate the risks identified. It is accepted that risks can emerge and change quickly and therefore that risk identification and mitigation activities will need to be able to respond to this and that at any given point in time enhancements to mitigating actions may be required in response to changes. Risks are assessed both on a gross basis (likelihood and consequence before mitigating controls) and a net basis (likelihood and consequence after mitigating controls) so that the Directors and the senior management team can properly assess the overall significance of the risk and the estimated effectiveness of mitigating actions and therefore if further actions are required. Analysis of average number of Group employees South Staffs Water 430 Non-regulated 2,065 The Directors accept that not all risks can be mitigated entirely and aim to ensure that risk management activities reduce the overall estimated impact of risks, on a net basis, to a level that is considered to be acceptable and that do not impact on the long-term viability of the Group. The Directors believe that the most significant risk areas currently faced by the Group include: • Health and Safety - the risks to the health, safety and wellbeing of the Group’s employees, contractors and members of the public that may be impacted by the Group’s operations 37