Southern Water reduces losses and grows investment

Southern Water reported a loss before tax of £16.6m compared to a higher loss of £73.3m the previous year in its new annual report. It has grown capital investment to £976.6m from £803.2m. Over the AMP it has spent £1.5bn more than its regulatory allowance. Its net debt/Regulatory Capital Value has increased slightly to 74% from 69%.

No dividends have been paid to shareholders since 2017-2018. Southern Water was banned from paying performance-related bonuses to its senior executives because of its category one pollution incident, but the CEO’s two-year, long-term incentive plan (LTIP) pay was linked to a turnaround plan.

Operationally, Southern Water has delivered a 10% reduction in leakage over the last two years of the AMP and customer complaints down by 80%. Southern is, however, still struggling with serious pollution incidents.

Revenue of £992m increased by £104.8m, up 15%. Its operating loss reduced by £55.4m to £17.4m. Operating costs increased by 6% but bad debts by 60% representing 2.5% of revenues. Customer satisfaction was reduced by the significant water incidents in Hastings and Hampshire.

Southern Water achieved Ofwat’s targets for customer usage, unplanned outages, sewer collapses, external sewer flooding and D-Mex. It failed though on customer experience, supply interruptions, water quality, leakage, internal sewer flooding, pollution incidents and treatment works compliance.

Southern has appealed its determination to the Competition and Markets Authority. It remains in Trigger Event status for its poor credit rating BBB- (CreditWatch negative) from S&P; BBB- stable (Fitch) and Ba1 (stable) for Moody’s; and also a trigger event for its inadequate interest cover.