Welsh Water half-year results surface operational challenges

(by Verity Mitchell)

Welsh Water reported half-year results that benefitted from increased allowed revenues from the new price control. Revenue at Welsh Water increased by 27% to £459m. The company incurred £15m of restructuring and transformation costs, £7m of professional fees associated with consultancy support, and £8m of employee-related costs associated with a redundancy programme for 500 roles. Operating profit was £87.1m compared to a loss of £1.2m in the comparative half-year period, driven by higher allowed revenues and lower infrastructure renewal charges.

Capital investment fell to £292m from £304m in the prior half year. The reduction of £12m (4%) primarily reflects the comparative phasing of the National Environment Plan, which saw the completion of a significant number of projects in 2024. The company, at the time, undertook £15m of early start design work in respect of the overall AMP8 plan. Management, however, blamed the late release of the AMP8 programme for the planned lower enhancement spend profile in 2025/26, requiring completion of a revised detailed design and build plan.

Base maintenance expenditure is projected to increase across the AMP period, reflecting a strategic focus on long-term asset health. In contrast, enhancement investment has been reduced and rephased towards the latter part of the AMP, which management promises will not compromise the delivery of PCDs.

This ‘deliberate approach’, it explained, is intended to optimise delivery efficiency of the £4bn investment planned across the AMP. It said it remains on track to invest £665m in the current financial year.

The board’s regulatory debt policy targets gearing below 65%. Management is keen to stress that the financial position of the group has improved steadily since Glas Cymru’s acquisition of Welsh Water in May 2001 when gearing stood at 93%. On 30 September 2025, debt/RCV was stable at 61.9%. Gearing is expected to rise because of the large AMP8 capital investment programme planned for the next five years, but to remain within the board-approved threshold of under 65%. The proportion of inflation-linked debt has fallen to 64% (from 70%), in line with the group’s policy to reduce it to below 60% during AMP8. Fixed rate debt accounted for 31% with the remaining being 5% floating.

Drought has impacted performance and the company is behind on several of its targets: its Compliance Risk Index score, customer acceptability; supply interruptions from mains bursts, leakage and overall wastewater treatment works compliance. The company recorded five serious pollution incidents up to September 2025 which will obviate senior management’s bonuses for the current year (but not the new incoming CEO’s).

Progress has been made in meeting sewer flooding targets. Management said it had also improved river water quality and reduced overall pollution incidents. Although the company’s EPA will therefore remain at two stars, management noted improvements in four of the seven elements of the EPA measure in the last year, and that the company's total number of pollution incidents is the second lowest in the industry. More needs to be done to improve discharge permit compliance at wastewater treatment works and reduce serious pollutions.

Management estimated that the ODI penalty for this year could be worse than its original assumption by up to £40m, impacting revenues from 2027/28. The company plans to challenge the formulaic level of penalty from some ODIs during PR24: “We intend to engage positively and openly with stakeholders to find a forward-looking solution that recognises the shortcomings of the existing ODI framework. There is, of course, no guarantee that these challenges will be successful.”

Roch Cheroux joined the board on 6 October 2025 and will formally take over as CEO in January 2026. Roch previously served as CEO of Sydney Water and South Australia Water Corporation.