Penalties plummet at Anglian, but more equity needed by 2030

(by Verity Mitchell)

Anglian Water last week reported full-year results that included lower-than-budgeted Outcome Delivery Incentive penalties, a significant cost change re-opener, and the need for a further equity injection by the end of AMP8.

The group’s revenue increased 20% to £2,103m in the year ended 31 March 2026, driven by regulatory allowances and volumetric demand, while operating profits were up 28% at £636m. It recorded £44m of SAP costs, with the chief executive admitting that “there was too much analogue” in the group. Of its peers, Yorkshire Water introduced SAP as early as 2001.

Capital expenditure increased by 5% to £1,135m, although the debt-to-RCV ratio for the utility business was 69.7%, down from 71.2%, reflecting both regulated asset growth and the additional £500m equity injection from shareholders since September 2025. A £75m dividend was paid to its Midco compared to none the previous year. Directors have proposed a dividend for 2025/26 of £90m to be paid in June.

The board’s target of reducing gearing to below 65% by 2030 is, however, predicated on a further £1.2bn of new equity. This is the most explicit commitment any water company has made to date on future equity requirements, although others are also likely to require more support.

Management set out the details of a successful price resubmission to the Competition and Markets Authority (CMA) that will increase its allowed revenues. Despite a relatively modest uplift to base expenditure allowances – and the higher allowed return afforded to all the appellants to the CMA – Anglian successfully challenged the scope of some ODIs, increasing rewards and reducing penalties for external sewer flooding, total pollution incidents, water supply interruptions, and leakage reduction. This yielded a total benefit of £108.2m. It was allowed a further £70m increase in enhancement expenditure and £184m of new allowances under Ofwat’s provisional ‘gated’ scheme to secure more water for Cambridge. For 2025-2026, then, the budgeted £53m of net ODI penalties (compared to the actual penalty of £41.5m in the prior year) was significantly lower, at £10.5m.

In terms of performance improvements:

• Anglian reduced total pollutions by 15% to 371 but saw a rise in serious pollution incidents, from seven in 2024 to 12 in 2025. It said that 82% of pollution incidents were linked to three primary root causes: foul sewer blockages, electrical failures, and structural asset failures. 

• Storm overflow performance reached its best level to date, with spills reducing by over 60% in 2025 and the total duration of all spills reducing by more than 80% compared to 2024. 

• Flooding performance improved materially during the year, with repeat external sewer flooding incidents almost halved (31 to 17), together with a 29% reduction in internal sewer flooding from blockages. 

• 100% of beaches in Lincolnshire, Suffolk, Essex and North Norfolk were rated ‘Good’ or ‘Excellent’ by the Environment Agency – the highest percentage of ‘Excellent’ and ‘Good’ bathing waters in the country.

  
  

In addition to its current £11bn expenditure programme for 2025-2030, Anglian has submitted a cost change re-opener request to Ofwat for a further £346m of spending on new water storage and asset health, as well as investment to respond to faster-than-expected customer growth. This is too significant a sum – if allowed – to be funded under existing plans, and so Anglian is asking for additional in-period revenues.

Now that many companies have attracted new equity at the beginning of the period, Ofwat needs to play its part by sharing the additional investment cost of better asset health and support for faster economic growth with customers before 2030.