Southern reports operating loss as pollution fine bites

Southern Water has reported an operating loss of £4.9m for the year to 31 March 2022 from an operating profit of £103.2m in the previous year. The drop was driven largely by a £92.5m fine with costs for pollution incidents at some of its wastewater treatment plants during 2010-15.

The operating loss reflected also a £36.2m hike in depreciation and amortisation to £324.1m and the addition of a bad debt charge of £29.9m – down from the previous year’s £34.8m – taking operating costs up £147.5m year-on year to £830.2m.

Revenue for the year was up £39.3m to £823.5m with additional other operating income at £1.8m.

Southern is subject to the impacts of an ongoing, Ofwat-imposed requirement for Southern to provide rebates to customers following the regulator’s 2019 investigation into the company’s wastewater treatment compliance. That "regulatory settlement" appears in Southern's current report as a £21m addition to revenue – down from £35.6m for 2020-21, reflecting inflation changes.

The additional revenue arises from amortisation, over the period 2020-24, of a £135.5m accrual taken from the company’s 2018-19 revenue to cover the rebates.

Southern water explained the accrual and amortisation measure as arising from having: “no clear accounting standard guidance for the income statement treatment of this regulatory settlement.” It said the rebates were “being made and recorded through revenue, and the accrual made in 2018–19 is being unwound on the face of the income statement, also through revenue.”

Net finance costs for the year were up £364.1m to £865.2m including fair value losses on derivatives at £699m.

The company reported a loss before tax up £465.7m from the previous year’s loss to £761.5m