Analysis: Anglian full-year results and pollution reduction plans unpacked

Following its full-year results announcement, the Anglian Water management team held a results presentation to unpack the year to 31 March 2025 in more detail and explain more about its Pollution Incident Reduction Plan.

For the last year of the AMP, Anglian incurred £33.4m of Outcome Delivery Incentive (ODI) penalties, of which around £16m related to leakage targets. The remainder were for pollution incidents, interruptions to supply and internal and external sewer flooding. Although in 2024 serious pollutions incidents fell by 36%, total pollutions increased. A Category 1 pollution incident in the year triggered the bonus ban under the Water (Special Measures) Act which came into force on 6 June.

Anglian’s clean water resilience challenge, from the lack of rainfall in its area, is well understood. £650m is allowed for developing two new reservoirs. However, despite having one of the lowest levels of leakage in the industry, a three-year rolling average of 186.5 megalitres a day and a 3.9% reduction from the three-year 2019/20 baseline period, the company still received an ODI penalty.

Anglian’s most acute short-term challenge is to address its ‘lagging behind’ status in Ofwat’s performance categorisation for 2024. Among a range of unsatisfactory measures, its most serious challenge is to reduce total pollutions by 46% and serious pollutions by 72% by 2030 through increasing interventions. This means addressing the three root causes of pollutions as management perceives them: asset failure; blockages; and hydraulic overloading.

It plans to spend an additional £245m to achieve this and successfully asked its shareholders in July 2024 to contribute £100m to allow faster interventions. Even with this work it still expects to earn ODI penalties for AMP8. The rolling out of 42,000 smarter monitors throughout its wastewater assets, a focus on high-risk sites, more self reporting, reducing unauthorised flows into its waste water system and monitoring households to reduce blockages and targeted asset rehabilitation are all underway.

Anglian’s unhappiness with the levels of allowed return and totex gap of £209m in its Final Determination (FD) led to its appeal to the Competition and Markets Authority. With an expectation of an improvement to its risk and reward balance, Anglian shareholders have committed to inject £500m into the Group, “reflecting confidence in the business and sector”. £300m will be provided by early September 2025 to repay a £240m midco bond maturing in March 2026. The remaining £200m will be provided by early June 2026 to repay £200m of bank loans at holding company level.

There may need to be further equity injections – Ofwat’s lower, more conservative, notional gearing assumed an equity injection of £1.523m (with dividend payments of £1.274m) at the FD. The group targets gearing by 2030 of less than 65% debt/RCV for Anglian Water Services (down from 72% at the end of AMP7); less than 75% for its midco Osprey (from 80%); with Aigrette (holdco) levels under review (from 86%).

Equity injections have secured a stable investment grade rating for the utility. That, and Anglian’s efforts to spend to improve its operational performance, have tightened its midco bond spreads. It’s a long way up from ‘lagging behind’ to ‘leading’ but the capital providers are funding management’s plans and ambition to improve, with hope for a more generous redetermination by the CMA.