AWE PLC Annual Report and Accounts 31 March 2023 Registered number 02763902 October 2023 CP 931 AWE PLC Annual Report and Accounts 31 March 2023 Presented to Parliament by the Secretary of State for Defence by Command of His Majesty October 2023 CP 931 © Crown copyright 2023 This publication is licensed under the terms of the Open Government Licence v3.0 except where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3. Where we have identified any third party copyright information you will need to obtain permission from the copyright holders concerned. This publication is available at www.gov.uk/official-documents. Any enquiries regarding this publication should be sent to us at: Room 20 Building F161.2 Atomic Weapons Establishment Aldermaston Reading England RG7 4PR [email protected] ISBN 978-1-5286-4075-6 E02901850 09/23 Printed on paper containing 40% recycled fibre content minimum. Printed in the UK by HH Associates Ltd. on behalf of the Controller of His Majesty's Stationery Office. Table of Contents Strategic Report 4 Chair's Statement 5 Chief Executive's Statement 7 AWE and our Mission 9 AWE Strategic Imperative 11 Financial Review 12 Performance and KPIs 14 Principal Risks 18 Environmental Sustainability Report 25 Section 172(1) Statement 42 Corporate Governance Report 44 Directors' Report 45 Statement of Directors' Responsibilities 50 Governance Statement 52 Remuneration Report 68 People Report 73 Independent Auditor's Report to the Members of AWE plc 82 Financial Statements 88 Income Statement 88 Statement of Other Comprehensive Income 89 Balance Sheet 90 Statement of Changes in Shareholder's Equity 92 Cash Flow Statement 93 Notes to the Financial Statements 94 Glossary of Terms and Abbreviations 127 It gives me great pleasure to introduce the AWE plc Annual Report & Accounts for the year ended 31 March 2023. AWE plays a fundamental role in the Continuous at Sea Deterrent (CASD) and defence of the United Kingdom (UK), guarding against the most severe threats to our nation and way of life. AWE maintains and supports the in-service warhead system; designs, produces and assembles components into certified warheads; and supports warhead and Defence Nuclear Material deliveries, while continuing to invest in the underlying infrastructure to support all its activities. AWE is also undertaking a once-in-a-generation programme to design and deliver a Replacement Warhead, as well as carrying out Nuclear Threat Reduction (NTR) activities. NTR provides a unique contribution to the national security of the UK through expertise in the defence against evolving radiological and nuclear threats. AWE became a Non-Departmental Public Body (NDPB), wholly owned by the Ministry of Defence (MOD), in 2021. This is the second annual report that has been published since this change. Over the past year, both AWE and the MOD have continued to work together effectively, building on the initial transition period to start realising the full potential of closer integration with government. This time last year, we had defined and laid out a business transformation programme that will make an important contribution to the capabilities necessary to deliver our current and future programmes. Significant progress on delivering this transformation has been achieved during this reporting period. We are making a fundamental shift in how AWE operates, maturing and performing at pace. Crucially, we have also maintained and delivered our commitment to safety, meeting our own standards as well as those expected of us by government, regulators, and the public. We have taken a positive and decisive step forward with the renewal of AWE over the past year, and we must continue to deliver our plan for change, as an output-focussed business that embraces simplicity. Subsequent to the reporting period, an accident on one of the construction programmes at AWE's Aldermaston site resulted in the death of one of the contractor's employees. Although AWE was not directly involved it is supporting the associated investigations. The incident did not affect any of AWE's nuclear installations or materials. Our condolences are with the deceased's family, friends and colleagues at this tragic time. I would like to thank Alison Atkinson, AWE's former Chief Executive, for her commitment, contribution, and leadership over 18 years. Alison achieved many great things during her AWE career, across both capital projects and technical programmes. I look forward to working alongside Iain Stevenson, AWE's Interim Chief Executive, the Executive Committee, our people, and partners as we continue to drive the business forward. Sir John Manzoni, Chair This has been a pivotal year in AWE's proud history. Comparing where we are now, with this time last year, we have made real progress as a business. This is because we have a clear strategic programme, and we have maintained a relentless focus on delivering it. I have seen our business embrace bold new ways of working, driven by simplicity and efficiency. None of this would have been possible without the hard work of our dedicated people, and I would like to thank them for their commitment and contribution. Over this reporting period, we have taken forward the 14 key Strategic Initiatives in our Business Plan, at pace, as part of our transformation programme. Our focus on driving these initiatives is paying dividends. We continue to make significant strides in building an effective, collaborative, and trusting relationship with the MOD, and we are now setting and driving the agenda for our work together. In the past 12 months, we have also established a stand-alone, empowered Engineering function and stood up a Liabilities function, which will re-start high hazard decommissioning in 2023 and deliver our first draft lifetime plan. Our strategy to modernise production is progressing and beginning to realise benefits. Great progress has been made with the Mark 4/4A warhead, and we have completed the Systems Requirements Review for the Replacement Warhead Programme. We have also taken positive steps in transitioning from enhanced to normal levels of oversight from the Office for Nuclear Regulation, both at our Burghfield and Aldermaston sites – the transition has been completed at the Burghfield site. We have incredible, world-leading scientific capability at AWE, and we have been publicly credited for the role that we played in the scientific breakthrough of fusion ignition announced by the National Ignition Facility at the Lawrence Livermore National Laboratory in California. Physicists have been pursuing this scientific breakthrough for decades as it will enhance our ability to assure weapon performance without the need for an underground test, and our involvement in this fantastic achievement is a reminder of the brilliant work that we do. As we prepare for significant milestones ahead, I know that our people will continue to bring their focus, dedication, and expertise to the tasks and challenges. I would also like to thank my predecessor, Alison Atkinson, for her extraordinary contribution to the business over 18 years. I am honoured and humbled to take on the responsibility of Interim Chief Executive, and it will not be easy to follow in Alison's footsteps. Alison leaves a lasting legacy and, along with all of us at AWE, has laid the foundations for our transformation for the future. With the support of the Chair and the board, we are in a strong position to succeed, with a wealth of talent and experience among our team. Our unique capability and sheer determination will enable us to build a trusted, safe, and sustainable business to effectively play our part in the defence of our country. Iain Stevenson, Chief Executive Officer AWE Mission AWE's mission is to support the defence and security of the UK. Since 1945, the people of the UK have elected governments which have maintained a policy to have a nuclear deterrent. The modern form of this is CASD, which deters the most severe threats to the UK and our way of life. AWE designs, manufactures, maintains and develops the UK's nuclear warheads for CASD, as well as providing unique expertise to support national nuclear security and threat reduction. To do this, we must sustain the scientific expertise and industrial know-how to manage, integrate, and deliver a set of complex programmes and projects safely and securely. This leads to three programmes which AWE undertakes to support the UK's defence and security: 1. The work we carry out for, and in collaboration with, the MOD includes manufacturing and maintaining warheads that enable the UK to deter the most extreme threats to our way of life. This is our Trident Mk 4A mission. 2. Undertaking research and development to keep the current product in service and to be able to design and manufacture a replacement warhead. This is our Replacement Warhead and Warhead Underpinning Technologies mission. 3. Using nuclear know-how and technical expertise to support the UK's counter terrorism and nuclear threat reduction activities. This is our Nuclear Threat Reduction mission. To deliver these three programmes, we sustain our capability for the long term – the people, the facilities, the know-how – ensuring that the UK can provide warheads and nuclear threat reduction services not only in the present, but far into the future. AWE Vision Together, delivering solutions for a safe and secure future. “The ultimate guarantee of our national security is nuclear deterrence which relies on us having a credible nuclear capability to deter the most extreme threats to the UK and our Allies. As such, there can be no risk to our ability to deploy this without interference. The Treaty on the Non-Proliferation of Nuclear Weapons prohibits nuclear weapons states from transferring nuclear weapons to other states, including other nuclear weapons states. Therefore, while we can acquire the ballistic missiles from the US, the warheads themselves must be produced in the UK.” - MOD Defence & Security Industrial Strategy 2021 AWE Business Model & Organisational Structure The MOD owns the AWE sites. AWE is responsible under a contract with the MOD for operating the sites safely and securely as well as delivering a safe, effective, and efficient nuclear warhead programme. AWE employs the workforce, holds the nuclear site licences, environmental permits, and other regulatory permissions. The NDPB structure was selected by the Government to strengthen alignment, simplify the relationship with AWE, and improve value for money. Our strategic imperative is to deliver on time, securely, safely, and sustainably. Trust and transparency are critical to achieving these because success relies on the effective and efficient collaboration and alignment across the Defence Nuclear Enterprise (DNE), from requirement setting to funding decision-making through to delivering output. AWE's reputation as an employer of choice, particularly in science, engineering and programme management, will ensure that we continue to attract the most highly skilled employees. Our Business Plan outlines the transformative actions we must undertake to ensure that we continue to maintain the trust of our customers, stakeholders and the wider UK economy. As we make tangible progress on these actions, the nature, needs and priorities of our continuing and development activities will continue to evolve. We will complete 5 strategic actions by 2025: 1. Modernise delivery – Reduce end-to-end production span times, increase consistency of product configuration and traceability, rationalise design processes and improve assessment capability. 2. Partner with the wider UK economy – Optimise the use of supply chain in production, improve infrastructure delivery and decommissioning, invest to regenerate national capacity, and partner with the UK and US National Labs Alliance. 3. Attract, grow, and retain the best people – Continue to improve workforce agility, provide an attractive employee value proposition, increase outreach to the national talent pool and including through our apprentice/graduate schemes, all based on being known for UK nuclear security and a great place to work. 4. Recapitalise and consolidate our estate – Deliver the estates master plan that encompasses Environmental, Social and Governance (ESG) principles and deliverables which align with strategic partnerships achieving early contract engagement and solutions to accelerate projects. 5. Support DNE alignment – Clarify ways of working, improve alignment of teams, governance, and decision-making, as well as product approvals and technical assurance, and develop and implement an approach to real-time international collaboration. Company financial performance for the year ended 31 March 2023 The financial statements for the year ended 31 March 2023 show the following*: • revenue of £1,476.7 million (15 months ended 31 March 2022: £1,425.7 million) • gross loss of £21.4 million (15 months ended 31 March 2022: gross loss of £31.2 million) • net profit for the year of £3.9 million (15 months ended 31 March 2022: net loss of £439.2 million) • net liabilities of £234.1 million (15 months ended 31 March 2022: net liabilities of £57.0 million) • capital contribution of £nil (15 months ended 31 March 2022: £63.0 million received in relation to an equity contribution from the owner of the Company equal to the amounts paid by the Company to the pension scheme in respect of the deficit funding of the scheme) * Comparisons are for the 15 months ended 31 March 2022 due to the transition to government ownership when AWE plc changed its accounting reference date from December to March to align to the MOD. Revenues mainly arise from work undertaken in relation to AWE's principal activity. This accounts for 98% of revenue (15 months ended 31 March 2022: 99%). The increase in revenue on a pro rata basis reflects the increased level of activity in the year compared to the prior period. This reflects mainly the increasing investment in the infrastructure in connection with current and future facilities for the nuclear warhead programme. Revenues with regards to the principal activity, being the performance of the Management & Operations (M&O) contract in relation to operating the AWE sites owned by the MOD and delivering the nuclear warhead programme, mainly reflect the re-imbursement of costs with fee for expenditure in relation to meeting the trident and replacement warhead commitments, and the delivery of the critical infrastructure projects required to meet these commitments. The costs include those associated with maintaining and operating the site and the costs of the workforce involved in delivering these commitments at Aldermaston, Burghfield and Blacknest, together with the costs of the infrastructure projects. The infrastructure is owned by the MOD, not AWE plc, and accordingly the investment in infrastructure is not capitalised, but dealt with as a programme cost. The performance of the M&O contract is addressed in summary in the Performance and KPIs section. The gross loss for the year ended 31 March 2023 arises as a result of the fee earned on the M&O and other contracts of £1.3 million (15 months ended 31 March 2022: £2.3 million) offset by Research and Development Expenditure Credit (RDEC) income received by AWE (the income received by AWE is recognised in Other operating income) returned to the MOD under contract of £18.4 million (15 months ended 31 March 2022: £21.5 million) and the net current service and related interest costs arising in relation to the defined benefit pension scheme included in cost of sales of £4.0 million (15 months ended 31 March 2022: £12.0 million). The net profit for the year ended 31 March 2023 arises principally as a result of the gross loss, as explained above, being offset by Research and Development Expenditure Credit (RDEC) income received by AWE of £18.4 million included in Other operating income, together with administrative expenses, finance expense and a tax credit. The net loss in the prior period includes the one-off write off of £423 million in respect of the pension fund asset previously recognised up to 30 June 2021. Net liabilities principally arise as a result of the net liability in respect of the defined benefit pension scheme. The net liability of the defined pension scheme has increased to £238 million (31 March 2022: £53 million). Further details are provided in note 15 in the financial statements. A detailed account of AWE's finances is provided in the financial statements (pages 88 to 93). The land and properties utilised by AWE for the performance of their activities are owned by the MOD and are therefore not included in AWE's financial statements. Going concern The financial statements are prepared on the basis that the Company continues as a going concern. Further details regarding this assessment are set out in the Directors' Report on page 45. This section sets out the performance and KPIs of the Company for the year ended 31 March 2023. Overview of KPIs The KPIs set out below, which incorporate performance against milestones, are those that the AWE board judge the most effective in assessing progress against objectives or strategy, monitoring principal risks, or are otherwise utilised to measure the development, performance, or position of the entity. The KPIs and milestones therein, are broadly split between delivery outputs, as a measure of delivery performance, and those activities and benefits that are 'making the business better'. The KPIs are set out in four sections, addressing our key principles of performance as follows: • is AWE safe and secure? • is AWE performing, i.e., is the plan being achieved? • is AWE in control, i.e., is the plan stable? • is AWE mobilised with the right resources? Performance Summary Commentary: • is AWE safe and secure? - In this section all targets were met through the reporting year recognising the continued focus on safe and secure operations. • is AWE performing, i.e., is the plan being achieved? - The infrastructure milestones, across a range of the key infrastructure projects were all achieved. However, targets in other areas were not achieved where challenges remain in other areas of the business as we set targets to drive improved performance. Focus continues on making further improvements to production facilities and their performance against schedule. The current outlook is an improving position. • is AWE in control, i.e., is the plan stable? - Financial targets were achieved. Timeliness of investment approvals fell short of the target set, which was for no late submissions and approvals against the plans. The majority of planned dates were met, however given a few fell short the overall target was not achieved. The target set of the proportion of spend under category management was set when the initiative to achieve increasing the amount of expenditure under category management was immature. The target is being revisited in light of further progress in this area, to ensure an appropriate, achievable, level of ambition is set as a target. • is AWE mobilised with the right resources? - Half of the six targets were delivered in this area. Significant focus continues on ensuring AWE is able to secure the right number of the right resource. Initiatives are in place to address this challenge to deliver to the targets in future periods. Through the reporting period availability of resource has fallen short of that requested by the business and that planned to be delivered to the business. The first shortfall was within target, which anticipated some level of shortfall, but the latter was outside of target. The target regarding building and maintaining diverse teams and an inclusive culture was achieved. KPI Performance Table: 1. Is AWE Safe and Secure? - Occupational Safety and Health Administration (OSHA) rate: Target < 0.3 | Outturn 0.256 | Target achieved. The OSHA rate has remained below target the whole year. - Security incidents per 100,000 hours (12 month rolling): Target < 1.5 | Outturn 1.3 | Target achieved. Security incidents remained below target the whole year. - Mandatory training compliance: Target > 95% | Outturn 99% | Target achieved. Mandatory training compliance was above target the whole year, except for January 2023. - Regulatory enforcement: Target None | Outturn None | Target achieved. No enforcement notices were received through the year. 2. Is AWE Performing? - On time delivery of defined milestones (Mission Delivery): Target No late milestones | Outturn 7 missed | Target not achieved. Not all milestones were delivered. - Delivery to order book (cumulative): Target > 90% | Outturn 90% | Target not achieved. Delivery to order book is on an upward trend but was below target. - Production right first time (non-conformance): Target >= 95% | Outturn 95% | Target achieved. Production right first time has remained at a consistent level through the year. - On time delivery of defined milestones (Infrastructure Project Delivery (IPD)): Target 100% | Outturn 100% | Target achieved. All IPD milestones were delivered on time. 3. Is AWE in Control? - Performance against Defence Nuclear Investment Committee (DNIC)/Investment Approvals Committee (IAC) approved projects (cost/time): Target No late | Outturn 2 late | Target not achieved. 2 delivered on time and to cost. 2 delayed with adverse cost variance. - On time delivery of IAC stage gates: Target No late | Outturn 1 late | Target not achieved. 9 out of 10 IAC stage gates were on time. - Full Year variance between actual and budget: Target < +/- 5% | Outturn 0.4% | Target achieved. - Spend under category management: Target > 98% | Outturn 2% | Target not achieved. Spend under category management remained consistently below target. The target has been reassessed as there is now a better understanding of an appropriate target for AWE. The position is also improving with 15% achieved subsequent to the reporting period. 4. Is AWE Mobilised with the Right Resources? - Variance between FTE demand and supply: Target < +/- 10% | Outturn -9% | Target achieved. Supplied resource was below demand but within target. In year there was a 51% increase in hires and an improving Time to Offer. - Variance between actual supply and budget: Target < +/- 2% | Outturn -9% | Target not achieved. - Employee net promotor score: Target > 10 | Outturn -4 | Target not achieved. Employee net promotor score has been negative through the year since measurement started in September 2022. It has trended upwards in the final quarter. - Core and critical skills for the future: Target > 90% | Outturn 91% | Target achieved. - Female hires (12 month rolling): Target > 35% | Outturn 32% | Target not achieved. The upward trend of female hires levelled off towards the end of the year and remained just below target. - Employers Network for Equality & Inclusion (ENEI): Target > 70% | Outturn 79% | Target achieved. ENEI has remained consistently above target all year. Principal Risks This section sets out the principal risks identified and being managed by the Company as at the date of this report. The board has identified and assessed the principal risks and uncertainties facing the Organisation; their potential impact; the mitigating actions proposed in respect of such risks and their change in risk profile during the year. Each risk has an assigned Executive Committee member, and the effectiveness of the mitigation actions are monitored through the governance arrangements in place up to the board. Key Principal Risks Summary: 1. AWE Current Capabilities (Risk Owner: Chief Operating Officer) - Risk: Unavailability of current plant, facilities and enabling infrastructure to support the programme due to ageing plant and infrastructure. - Potential Impact: Delays to operations, increase in ESH&Q events, increased maintenance costs. - Mitigating Actions: Re-kit programmes, Estates strategy, risk-based asset management plans, prioritising single points of failure, emergency response capabilities. 2. AWE Future Capabilities (Risk Owner: Chief Operating Officer) - Risk: Unavailability of future plant, facilities and critical infrastructure to support the programme. - Potential Impact: Delays to operations, ESH&Q events, financial penalties from project delay. - Mitigating Actions: New capital builds, Infrastructure Capability Plan, Estates Strategy. 3. AWE Sites (Risk Owner: Executive Director Liabilities) - Risk: Impediment to the use of AWE sites to allow operations to continue (pandemic, environmental, protestor action, force majeure). - Potential Impact: Restriction or delays to operations, increased recovery costs. - Mitigating Actions: Business resilience and continuity plans, physical and personnel security controls, emergency response. 4. People (Risk Owner: Chief People Officer) - Risk: Inability to attract and/or retain the right number of people with the right skills. - Potential Impact: Adverse effect on business objectives, regulatory compliance issues (SQEP shortage), brand damage, wellbeing issues. - Mitigating Actions: Strategic Workforce Planning, Location Strategy, reward framework, SQEP development, STEM outreach, employee engagement. 5. Supply Chain (Risk Owner: Chief Finance Officer) - Risk: Insufficient capability and capacity within the supply chain. - Potential Impact: Reduced ability to set up long term agreements, unavailability of critical goods, cost overruns. - Mitigating Actions: Robust demand planning/pipeline, long-term strategic relationships with critical suppliers, delivery-focussed contract management. 6. Funding (Risk Owner: Chief Finance Officer) - Risk: Insufficient funding available from MOD or inability to persuade wider government of funding requirements. - Potential Impact: Inability to invest in people/capability, cessation of operations, loss of stakeholder confidence. - Mitigating Actions: Long-term planning, Business Case Assurance reviews, strong relationships with MOD. 7. Environment, Safety & Health (Risk Owner: Director ESH&Q) - Risk: Failure to maintain safe and sustainable operational environment and prevent a major incident. - Potential Impact: Restriction of operations, worker fatality or serious injury, environmental release, fines. - Mitigating Actions: Licence to operate controls, Periodic Review of Safety (PRS), decommissioning programmes, Culture of Care. 8. Quality (Risk Owner: Director ESH&Q) - Risk: Failure to establish, manage and monitor adequate quality management systems. - Potential Impact: QA/QC failures, rework and lost production, erosion of MOD confidence. - Mitigating Actions: Quality Improvement Plans, digitisation, training, risk reviews and audits. 9. Employee Relations (Risk Owner: Chief People Officer) - Risk: Deteriorating industrial relations leading to formal industrial action. - Potential Impact: Restriction or suspension of operations, reputational damage. - Mitigating Actions: Positive engagement with trade unions at all levels, reward framework, resilience strategies. 10. External Environmental Shock (Risk Owner: Executive Director Assurance) - Risk: Sudden political change, serious accidents, or rapidly changing regulatory trends. - Potential Impact: Changes to funding, scope, schedule; increased regulatory burden. - Mitigating Actions: Geopolitical risk assessments, crisis response, PR and government-relations teams. 11. Contract Management (Risk Owner: Chief Finance Officer) - Risk: Failure to manage contracts effectively leading to losses or delays. - Potential Impact: Losses against contracts, breach of contract claims, negative public opinion. - Mitigating Actions: Senior Responsible Officers allocated, compliance with Internal Controls and Assurance Framework (ICAF), training. 12. Project and Programme Baseline Management (Risk Owner: Chief Operating Officer) - Risk: Failure to maintain programme control across large and diverse portfolio. - Potential Impact: Cost overruns, schedule delays, poor decision making, loss of stakeholder confidence. - Mitigating Actions: Enterprise Portfolio Management Office (PMO), timely SRO engagement. 13. Cyber Security and Data Loss (Risk Owner: Executive Director Security) - Risk: Cyber-attack leading to denial of IS services and loss of sensitive data. - Potential Impact: Breach of IT security, information leaks, ICO financial penalties. - Mitigating Actions: Continual technology upgrades, robust IT and data management controls. 14. Environment, Social and Governance (Risk Owner: Director ESH&Q) - Risk: Failure to recognise ESG impact or demonstrate sufficient credentials. - Potential Impact: Recruitment/retention challenges, loss of suppliers, reputational impact. - Mitigating Actions: Sustainability Plan, ESG policies, environmental footprint reduction, diversity & inclusion leadership. Outstanding environmental performance and sustainability remains important to AWE, helping to deliver the core mission. AWE's Environmental Sustainability Strategy (ESS) sets out visions and goals against three key themes: reducing Carbon, implementing the circular economy, and enhancing Biodiversity, underpinned by the UN Sustainable Development Goals (SDGs). Mitigating Climate Change: Working towards net zero by 2050 AWE aims to achieve net zero carbon emissions across the value chain by 2050. Scope 1 and 2 estate and operational emissions have reduced by 29% since the FY18 baseline year (April 2017 – March 2018). Table 1 – Carbon Emissions Summary (Financial Years 2017/18 to 2022/23): - Scope 1 Direct Emissions (tCO2e): 2022/23: 32,727 | 2021/22: 35,033 | 2020/21: 37,130 | 2019/20: 35,959 | 2018/19: 36,595 | 2017/18: 40,317 - Scope 2 Indirect (Location Based, tCO2e): 2022/23: 26,357 | 2021/22: 28,645 | 2020/21: 31,061 | 2019/20: 33,870 | 2018/19: 36,518 | 2017/18: 43,282 - Scope 2 Indirect (Market Based, tCO2e): 2022/23: 5 | 2021/22: 0 | 2020/21: 0 | 2019/20: 0 | 2018/19: 36,518 | 2017/18: 43,282 - Total Scope 1 & 2 (Location Based, tCO2e): 2022/23: 59,084 | 2021/22: 63,678 | 2020/21: 68,191 | 2019/20: 69,829 | 2018/19: 73,113 | 2017/18: 83,599 - Total Scope 1 & 2 (Market Based, tCO2e): 2022/23: 32,732 | 2021/22: 35,033 | 2020/21: 37,130 | 2019/20: 35,959 | 2018/19: 73,112 | 2017/18: 83,599 - Natural Gas Consumption (kWh '000s): 2022/23: 174,463 | 2021/22: 183,923 | 2020/21: 190,983 | 2019/20: 188,875 | 2018/19: 189,943 | 2017/18: 202,860 - Purchased Electricity (kWh '000s): 2022/23: 136,297 | 2021/22: 134,908 | 2020/21: 133,228 | 2019/20: 132,513 | 2018/19: 129,005 | 2017/18: 123,115 - Gross Energy Expenditure (£): 2022/23: 27,728,743 | 2021/22: 21,185,187 | 2020/21: 20,401,354 | 2019/20: 19,139,911 | 2018/19: 18,535,260 | 2017/18: 16,337,624 Scope 3 Business Travel Emissions (2022/23): - Domestic air travel: 129 tCO2e - International air travel (Short Haul): 105 tCO2e - International air travel (Long Haul): 4,570 tCO2e - Vehicle hire: 245 tCO2e - Private mileage claims: 158 tCO2e - Rail: 27 tCO2e - Gross expenditure on business travel: £8,888,423 (2021/22: £2,077,386) Waste Management Performance: - Controlled Waste (tonnes): 2022/23: 3,446 | 2021/22: 1,662 | 2020/21: 1,425 - Reused Waste (tonnes): 2022/23: 131 | 2021/22: 57 - Recycled Waste (tonnes): 2022/23: 2,901 | 2021/22: 1,163 - Recovered Waste (tonnes): 2022/23: 334 | 2021/22: 352 - Disposed (Incineration & Landfill, tonnes): 2022/23: 80 | 2021/22: 90 - Landfill diversion rate was 99%, reuse and recycle rate was 73% in 2022/23. Water Consumption: - Total water abstraction/supply: 2022/23: 825,432 m³ (2021/22: 778,618 m³) - Gross Expenditure on purchased water: 2022/23: £244,883 (2021/22: £189,005) Streamlined Energy and Carbon Reporting (SECR) Summary: - Total Gross Emissions (Location based): 61,553 tCO2e (2021/22: 65,556 tCO2e) - Total Gross Emissions (Market based): 32,790 tCO2e (2021/22: 34,379 tCO2e) - Total Energy Consumption: 314,642,051 kWh (2021/22: 321,741,182 kWh) - Intensity Ratio (Location based): 0.1081 tCO2e / m² floor area - Intensity Ratio (Market based): 0.0576 tCO2e / m² floor area This is the section 172(1) statement of AWE, made pursuant to the Companies Act s414CZA, describing how directors have had regard to: • Long term consequences of decisions in supporting the UK strategic deterrent and planning ahead for many years with the MOD. • Employee interests: Regular engagement with trade unions, workforce planning, leadership development, safety, wellbeing, and anti-harassment training. • Supplier, customer, and partner relationships: Close liaison with MOD and developing collaborative supply chain relationships. • Community and environment: Regular engagement with local community groups, enhancing biodiversity and ensuring regulatory compliance. • High standards of business conduct: Integrity and transparency as a publicly owned entity. • Acting fairly between members: The sole shareholder is the Secretary of State for Defence. Approved and signed on behalf of the board on 27 September 2023 by Iain Stevenson, Chief Executive Officer. Directors who held office between 1 April 2022 and 31 March 2023: • Sir John Manzoni, Chairman • Alison Atkinson, Chief Executive Officer (resigned 17 April 2023) • Richard Elsy, Non-executive Director • Claire Flint, Non-executive Director • Barry Hunter, Chief Financial Officer • Dame Sue Ion, Non-executive Director • Nicole Kett, MOD-appointed Non-Executive Director (resigned 1 June 2022) • Richard Keys, Non-executive Director • Henry Lloyd, MOD-appointed Non-Executive Director • Andrew McNaughton, Non-executive Director (Executive Director from 6 February 2023) • Dr J Stephen Rottler, Non-executive Director • Iain Stevenson, Interim Chief Executive Officer (appointed 7 June 2023) Dividends: No dividends were declared during the year (15 months ended 31 March 2022: £17.7m paid prior to transfer of ownership on 30 June 2021). Pensions: Defined benefit scheme closed to new entrants and future accrual on 31 January 2017 (except Coulport). The scheme deficit at 31 March 2023 was £238m (31 March 2022: £53m). Going Concern: The directors have a reasonable expectation that the Company will continue in operational existence through at least 30 September 2024. The AWE board meets around seven times a year and maintains seven committees: 1. Audit and Risk Assurance Committee (ARAC) - Chaired by Richard Keys 2. Engineering, Science and Technical Capability Assurance Committee (ESTAC) - Chaired by Dame Sue Ion 3. Infrastructure Committee - Chaired by Richard Elsy 4. Nominations Committee - Chaired by Sir John Manzoni 5. Production and Programme Committee - Chaired by Richard Elsy 6. Security, Environment, Safety, Health, and Quality Committee (SESH&Q) - Chaired by Dr J Stephen Rottler 7. Remuneration Committee - Chaired by Claire Flint Internal Audit provided an opinion of 'Limited Assurance' on the overall adequacy and effectiveness of governance, risk management, and control, while providing 'Substantial Assurance' for Internal Financial Control. Directors' Remuneration for 2022-23 (Single Total Figure): • Sir John Manzoni (Chair): £150,000 fees (2021-22: £112,500) • Alison Atkinson (CEO, resigned April 2023): £407,365 salary + £173,250 annual bonus = £580,615 total (2021-22: £299,519) • Barry Hunter (CFO): £257,500 salary + £2,520 benefits in kind + £33,475 pension benefits = £293,495 total (2021-22: £125,595) • Richard Elsy (NED): £29,995 (2021-22: £22,496) • Claire Flint (NED): £29,995 (2021-22: £22,496) • Dame Sue Ion (NED): £29,995 (2021-22: £22,496) • Richard Keys (NED): £29,995 (2021-22: £22,496) • Dr J Stephen Rottler (NED): £29,995 (2021-22: £22,907) • Andrew McNaughton: £24,996 (NED to 5 Feb 2023) + £60,478 (Exec Director from 6 Feb 2023) = £85,474 • Henry Lloyd & Nicole Kett: Civil service employees, received £nil additional remuneration. Fair Pay Disclosures: - Highest paid director salary and allowances: £407,365 (2021-22: £395,500) - Average employee salary and allowances: £52,546 (2021-22: £50,162) - Median pay ratio vs highest paid director: 11:1 (2021-22: 16:1) - 25th percentile pay ratio: 14:1 (2021-22: 21:1) - 75th percentile pay ratio: 9:1 (2021-22: 13:1) - Median total pay including benefits: £51,084 (Salary element: £44,835) Employee Engagement & Health: - 'Best Companies' engagement survey score: 662.7 ('One Star' status), response rate 73%. - RIDDOR Injury Rate: 0.032. - Sickness absence rate: between 2.9% and 3.9%. - Staff attrition rate for March 2023: 8.10%. Staff Composition (FTE at 31 March 2023): - Directors: 10 total (7 Male / 70%, 3 Female / 30%) - Executive Team: 11 total (9 Male / 81.8%, 2 Female / 18.2%) - Senior Managers: 265 total (204 Male / 77.0%, 61 Female / 23.0%) - Other Employees: 6,387 total (4,832 Male / 75.7%, 1,555 Female / 24.3%) - Total Employee numbers by job family: Science 1,176; Engineering & Manufacturing 3,032; Business Services 2,482; Total: 6,690 FTE. Staff Costs: - Salaries and wages: £378,046k (Permanent: £353,290k, Agency: £24,756k) - Social security costs: £38,370k - Pension costs: £39,147k - Redundancy and severance: £116k - Total Staff Costs: £455,679k Exit packages: - Total number of exit packages: 11 (all agreed departures, 0 compulsory redundancies), total cost £115,856. Consultancy spend: £24.4m (prior period: £33.1m). Independent Auditor's Report to the Members of AWE plc by the Comptroller and Auditor General: - Unqualified opinion on the financial statements for the year ended 31 March 2023. - Financial statements give a true and fair view of the state of AWE plc's affairs as at 31 March 2023 and of its profit for the year ended. - Prepared in accordance with UK-adopted international accounting standards and the Companies Act 2006. - Concluded that the use of the going concern basis of accounting is appropriate. - Senior Statutory Auditor: Hilary Lower, National Audit Office, 27 September 2023. Income Statement (Year ended 31 March 2023): - Revenue: £1,476,666k (2021/22: £1,425,739k) - Cost of sales: (£1,498,112k) (2021/22: (£1,456,898k)) - Gross loss: (£21,446k) (2021/22: (£31,159k)) - Other operating income: £18,405k (2021/22: £21,473k) - Administrative expenses: £1,316k (2021/22: (£1,199k)) - Exceptional items (write-off of pension asset): £nil (2021/22: (£423,000k)) - Operating loss: (£1,725k) (2021/22: (£433,885k)) - Net financing income/(expense): £91k (2021/22: (£30k)) - Loss before tax: (£1,634k) (2021/22: (£433,915k)) - Taxation: £5,543k credit (2021/22: (£5,235k) expense) - Profit/(Loss) for the period: £3,909k (2021/22: (£439,150k)) Statement of Other Comprehensive Income: - Profit/(Loss) for the period: £3,909k - Actuarial movement in relation to pension fund: (£181,000k) - Total comprehensive loss for the period: (£177,091k) (2021/22: (£120,150k)) Balance Sheet as at 31 March 2023: Non-current assets: - Investments in group companies: £1k - Other financial assets: £4k - Deferred tax assets: £5,161k - Right-of-use assets: £1,635k - Total non-current assets: £6,801k (2022: £1,849k) Current assets: - Contract assets: £107,093k - Other financial assets: £19k - Trade and other receivables: £76,353k - Cash and cash equivalents: £123,371k - Total current assets: £306,836k (2022: £251,083k) Total assets: £313,637k (2022: £252,932k) Current liabilities: - Lease liabilities: (£542k) - Trade and other payables: (£289,013k) - Contract liabilities: (£16,404k) - Provisions: (£800k) - Other financial liabilities: (£7k) - Total current liabilities: (£306,766k) (2022: (£252,196k)) Non-current liabilities: - Lease liabilities: (£1,051k) - Trade and other payables: (£1,515k) - Employee benefits (pension deficit): (£238,000k) - Provisions: (£376k) - Total non-current liabilities: (£240,942k) (2022: (£57,717k)) Total liabilities: (£547,708k) (2022: (£309,913k)) Net liabilities: (£234,071k) (2022: (£56,981k)) Equity: - Share capital: £50k - Retained earnings: (£297,121k) - Capital reserves: £63,000k - Total equity: (£234,071k) Statement of Changes in Shareholder's Equity: - Total equity at 1 April 2022: (£56,981k) - Profit for the year: £3,909k - Other comprehensive loss: (£181,000k) - Total equity at 31 March 2023: (£234,071k) Cash Flow Statement Summary (Year ended 31 March 2023): - Net cash from operating activities: £49,566k (2021/22: £24,578k) - Net cash from financing activities: (£1,063k) (2021/22: £44,225k) - Net increase in cash and cash equivalents: £48,503k - Cash and cash equivalents at 31 March 2023: £123,371k (31 March 2022: £74,868k) Key Notes Summary: - Note 1 Accounting Policies: Prepared under UK-adopted IFRS and FReM compatibility. Basis of going concern confirmed. - Note 2 Segmental Analysis: Core M&O segments include Mission Delivery, Operations, Infrastructure Programme Delivery (IPD), and Enabling & Corporate functions. - Note 3 Revenue: MOD revenue £1,446.88m; Non-MOD revenue £29.78m; Total £1,476.67m. - Note 4 Other Operating Income: RDEC tax credit £18.41m. - Note 6 Staff Numbers and Costs: Total average headcount of 6,464 employees; aggregate payroll cost £436.92m. - Note 15 Employee Benefits (Defined Benefit Pension): Scheme obligation of £1,530.0m against plan assets of £1,292.0m, leaving a net deficit liability of £238.0m at 31 March 2023. Discount rate 4.7% (2022: 2.7%), CPI inflation 2.8% (2022: 3.2%). - Note 16 Provisions: ACP provision £894k and contract provisions £282k; total provisions £1,176k. - Note 17 Share Capital & Reserves: 50,001 ordinary shares of £1 each; £63.0m capital reserve. - Note 22 Related Parties: Material transactions with MOD (sales of £1,632.5m, trade receivables £3.8m). - Note 23 Other Commitments: Total purchase commitments contracted for but not provided £950.68m. AASH - Annual Assessment of Stockpile Health ACP - Annual Compensation Payment AO - Accounting Officer BAT - Best Available Technique CASD - Continuous at sea deterrent CEO - Chief Executive Officer CFO - Chief Financial Officer DNE - Defence Nuclear Enterprise DNIC - Defence Nuclear Investment Committee FReM - Government Financial Reporting Manual FTE - Full-time equivalent FVTPL - Fair value through profit or loss GBS - Government Banking Service GGC - Greening Government Commitments MOD - Ministry of Defence NAO - National Audit Office NDPB - Non-departmental public body ONR - Office for Nuclear Regulation OSHA - Occupational Safety and Health Administration PMO - Portfolio Management Office RDEC - Research and Development Expenditure Credit RIDDOR - Reporting of Injuries, Diseases and Dangerous Occurrences Regulations SECR - Streamlined Energy and Carbon Reporting SESH&Q - Security, Environment, Safety, Health, and Quality SQEP - Suitably Qualified and Experienced Personnel TCFD - Task Force on Climate Related Financial Disclosures ULEV - Ultra-Low Emission Vehicles