South East Water reports significant losses

(by Verity Mitchell)

South East Water has reported full-year results. It said 2025-2026 had been a "tough year operationally and financially”. Revenues were £351.8m, up £66.3m (19%) from new regulatory allowances. Operating profit fell to £30.4m from £54.5m because of £54.7m of water supply interruption incident costs. It therefore reported a loss before tax of £45.4m.

Shareholders have contributed £30.5m of redress payments for supply interruptions (see below). South East also incurred £11.21m of performance penalties including £7.65m for water supply interruptions.

More positively, Regulatory Capital Value gearing fell to 66.5% from 72.5% following an £200m equity injection from shareholders. South East increased its investment by 22% to £191.7m. Ofwat has accepted South East’s transformation plan, ‘Project Lighthouse’. The Competition and Markets Authority appeal resulted in an additional £100m of revenue allowances to fund additional resilience investment.

At the end of June, South East announced a new chief executive – John Halsall – subject to regulatory approvals.

Ofwat agrees £30.5m redress package and independent monitor for South East Water 

Ofwat has secured a £30.5m redress package from South East Water following the conclusion of three investigations into repeated supply disruptions, customer service failings and the recent credit rating downgrade. This replaces and builds on the regulator’s draft March decision to fine the company £22m for 2020-23 outages, wrapping in redress for more recent outages and developments too.

The company’s shareholders will fund:

• £13m to undertake further investment following an independent root and branch review of the company’s resilience.

• £5m to speed up the smart metering programme for businesses.

• £5m to help households collect rainwater and reduce demand on the mains supply through the provision of free water butts.

• £5m to install on-site storage tanks and smart meters in high-usage businesses to help manage the network better at peak times.

• £1m to make sure critical settings don't run out of water if there is a future outage.

• £1.5m to create a community relief fund to give back to communities that suffered the worst water supply failures.

As part of the package, South East Water has committed to fix the problems identified via a Remediation Plan, which requires root cause identification, supported by an independent technical assessment.

To address the credit downgrade, the company has also committed to produce and publish a Performance Improvement Plan setting out how it will deliver sustained improvement in its performance for customers and the environment. Ofwat will monitor delivery of this plan with the support of an Independent Monitor that will report directly back to the regulator, the cost of which will be met by the company and is separate from the £30.5m redress package.

South East Water said: “By working in collaboration with Ofwat, we have agreed to a £30.5m redress package compared to a £22m fine, which will be wholly funded by South East Water’s shareholders. Choosing this route over a standard fine means these significant funds will directly benefit those customers who were impacted, some of them on multiple occasions.”

The company said it is focused on “sustainably expanding our network resilience and drinking water storage capacity so that we can prevent these failures from happening again." 

Management confirmed that it will need additional funds after incurring exceptional costs. It has enough cash to keep going until July 2027 but flagged that "shortly after" it will need to get more financing. It is in discussion with its lenders.